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Detroit Association of Insurance Agents Annual Banquet, January 13, 1955
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Detroit Association of Insurance Agents Annual Banquet, January 13, 1955
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Gerald R. Ford Congressional Papers
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The original documents are located in Box D14, folder "Detroit Association of Insurance
Agents Annual Banquet, January 13, 1955" of the Ford Congressional Papers: Press
Secretary and Speech File at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. The Council donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
1) Texas story
2) Trusy reach story.
Speech by Representative Gerald R. Ford, Jr.,
Fifth District - Michigan.
Shorting Boybin Pay Combat, Flight, Sub.
Annual Banquet - Detroit Asso ciation of Insurance Agents
January 13, 1955
"The Federal Government and Mail Order and Unauthorized Insurance"-
History records through the eyes of Marco Polo some of the
first observations of the basic fundamentals of insurance. While in
China he saw oriental merchants taking their goods to market cross
dangerous rapids only after carefully dividing each merchant's goods
among the cargoes of all the boats. In this way, risk by any individ-
ual was minimized and equally shared by all.
These shrewd oriental merchants knew most of the boats
would cross the rapids unharmed; but those that didn't wouldn't
carry one of their number to financial ruin and the loss of much
labor. The alternative carried to destruction only a fraction of the
property of any individual merchant.
More recently a group of adventurous Englishmen began a
custom of meeting regularly in Edward Lloyd's coffee house. Here
the merchants were shippers who sent their goods by large sailing
vessels to the far corners of the globe. The array of worldwide
destinations and the bulky cargoes outdated the ancient oriental
practice of dividing equally the actual goods being transported.
GERALD FORD LIBRARY
Digitized from Box D14 of The Ford Congressional Papers: Press Secretary and Speech File at the Gerald R. Ford Presidential Library
Page 2
These businessmen would post information at Lloyd's
indicating the value of their respective vessels with details
about the cargoes and proposed trip. Lloyd's would prepare a
document indicating the monetary value relative to the risk
and perils of the voyage. Then the men at Lloyd's could sign
the document showing the amount of liability they individually
assumed.
These men made a more complex adaptation of the theory
of insurance witnessed by Marco Polo years before, but demanded
by the greater envolvements of the newer age.
Today the theory behind insurance remains unchanged
since the days of Marco Polo and the early beginnings of Lloyd's.
But the actual applications of this theory have undergone vast
changes since Lloyd's. The complexities and technicalities of
modern day underwriters rivals, if not betters those of any other
modern day establishment. Indeed, I believe one of our American
life insurance companies is still conceded to be the largest
single private enterprise in the world. Coupled with this rapid
and tremendous growth of the insurance business historically
have come correspondingly vast, intricate and certainly contro-
versial problems.
FORDO & LIBRARY QTRALD
Page 3
I have always been intensely interested in the
historical origins of the insurance business. But even more,
I continue to be impressed by the basic fundamentals of the
business which have not and cannot change. Both the oriental
merchants and the Underwriters at Lloyd's realized that indemni-
fication of the unfortunate few was wholly dependent upon there
being a fortunate many. The business of insurance cannot survive
without adherence to that elementary truth.
If the fortunate many are to pay the losses of the
unfortunate few, then our second basic principle of the business
is obviously, How much? Recovery of the oriental merchant was
limited to his goods contained on boats which unsuccessfully
crossed the rapids. The underwriters at Lloyd's simply agreed
to offer a monetary settlement to the extent of the property
lost. That the business of insurance may still only reimburse
its customers to the extent of their financial loss interest
has been reaffirmed by our present day courts many times,
As a matter of fact, it is significant to note that
an insurance transaction which offered a settlement in excess
of a loss interest would in effect be affording a prize. It
is only the absence of a prize which distinguishes the business
of insurance from a lottery; an illegal endeavor in the United
States. Your business contains the elements of chance and
Page 4
consideration, but lacks the prize necessary to classification
as a lottery.
I have not gone into this exceedingly brief sketch
of your business in an attempt to be entertaining and otherwise
noncommittal. Instead, I have done so because it is my
unwavering belief as a public official, though a comparative
layman in the insurance field, that a great deal of our present
problem must be analyzed and any corrective action taken in
terms of its relation to bhe basic fundamentals of the business.
If the fortunate many become too few, or the unfortunate
few too many, we destroy a basic fundamental of the business,
Or, to use terminology of the trade, we no longer have a
favorable spread of risk necessary for survival. Therefore, it
follows that certain safeguards to protect this spread of risk
must be incorporated in policies of insurance.
All of which means to me that insurance policies
contain exclusions which are necessary to the continued success
of the company and protection of the policyholder's premiums
given it in trust. I am not one who believes for a moment that
any policy of insurance could endure devoid of all exclusions,
regardless of the premium charged.
Following the Federal Trade Commission's action last
October against seventeen insurance companies, I examined each
Page 5
of the complaints issued by the Commission. I have been
concerned during the ensuing months that many of those engaged
in your business have not clearly understood that the allegations
of the Commission were based solely on false and misleading
advertising; nothing more and nothing less,
I have already expressed my conviction that certain
insurance policy exclusions are necessary to protect the funda-
mentals of the business. I would challenge the Federal Trade
Commission's authority, or propriety, in questioning the aspect
of the coverage involved. But this the Commission didn't do.
It simply objected to alleged misrepresentation in the advertising
and explanation of the policies. None of us, in good conscience
could justify this practice, if the same be true.
There is no doubt that the action of the Federal Trade
Commission reflected adversely on insurance as a whole in the
minds of many not familiar with the technicalities of the business.
This is most regretable, but it is not unlike numerous other
trades or businesses where the sins of the few must be shared
by the many who are honest, scrupulous and rendering a public
service, I seriously question that the recognized accomplishments
of your profession, and the insurance business generally, can be
diminished by any such unfavorable but brief adverse publicity.
2 am opposel where to a of nobody phere Hoboes you has
tinth
Page 6
I am a firm believer in free enterprise, anything and wholly
attopia
2
oppose the unwarranted encroachment of the federal government,
everyone. agout to give big no through to
in fields when the states can best do the job, but it is recog-
nized in our present day society that there shall be government
regulation of private business when public interests are at
stake. Such regulation however should be aimed at the small
minority of a private industry, such as in yours, who may be
conducting abusive practices which conceivably reflect on the
whole industry.
I believe the regulations imposed by present state
insurance departments are for the most part adequate in containing
competition of the business within reasonable bounds. The so-
called standard provisions of the accident and health field are
ample evidence of the cooperation of state departments and the
vast majority of companies.
It is my most sincere hope that the National Association
of Insurance Commissioners, and the insurance industry itself,
can strengthen the laws and the administrative regulations with
regard to advertising. I know that our own Michigan Department
of Insurance has always exercised considerable jurisdiction over
advertising practices of licensed companies, and with apparent
success under current statutes.
GERALD FORD LIBRARY
Page 7
Mail order insurance is similar although it offers a
somewhat different problem in currently stretching our state
regulations. I have been advised that of the seventeen companies
named in the Federal Trade Commission's charges, only three are
licensed in Michigan, yet most have conducted mail campaigns in
our State.
Especially during the past months Michigan has been
flooded by offerings of mail order insurance. There is no definite
way of telling how many mail solicitations have been made in
Michigan, but it appears that based on automobile registrations
they could amount to several hundred thousands of dollars.
Figures from the Insurance Commissioner of the State
of Missouri show some indication of the extent of this mail order
business as it originates from four companies in Missouri who
have been selling policies by mail in Michigan.
These companies aren't licensed in this State, and our
Department of Insurance does not have jurisdiction over them as
it does over licensed companies with regard to capital, surplus,
reserves, terms of the policy, examinations or any other matter.
During 1953, one of these companies alone, by name, the
Automobile Owners Safety Insurance Company, collected more than
$81,000 in premiums from Michigan residents on $5.00 policies which
FORD i LIBRARY GERALD
Page 8
represents a grand total of more than 16,000 policies sold in
Michigan in one year by one unlicensed outstate company.
In addition three other companies have reported to the
Insurance Commissioner in Missouri business in Michigan reaching
substantial amounts. It has been estimated that a minimum of
$250,000 in premiums have been taken out of Michigan by these
three companies in 1953. And it might interest you to know that
one of these companies, Old American Insurance Company of
Kansas City, on a nationwide basis, collected $2,285,000 in
premiums in 1953.
The Michigan State Legislature is helpless to prevent
this mail order business flowing over its borders. Mail order
sales of insurance are being made in violation of Michigan law
under which the sale of mail order insurance by M;chigan licensed
companies is not allowed. The trouble is: these companies, such
as those in Missouri, need not and are not licensed by Michigan
in order to sell insurance by mail in our state.
With these facts in mind it appears that Federal legis-
lation may be needed to strengthen state regulation of the
insurance business. Let me re-emphasize that point - Federal
legislation to strengthen state regulation. Frankly I started
out with the positive assumption that I would prepare a bill to
accomplish this objective, and here is what I had in mind.
GERALD FORD (IBRARY
Page 9
"That chapter 83 of title 18 of the United States Code
(relating to crimes in connection with the postal service) is
amended by adding at the end thereof the following new section:
'1733. Solicitation of Insurance through the Mails. - Every
letter, circular, postal card, or pamphlet which is addressed
to a place in a State where sales of insurance by mail by insurers
licensed by the State are prohibited, and which contains an offer,
solicitation, or advertisement concerning the sale of insurance
by an insurer not licensed by the State, is non-mailable and
shall not be conveyed in the mails or delivered from any post
office or by any letter carrier.
" 'Whoever uses or attempts to use the mails or Postal
Service of the United States for the transmission of any matter
declared by this section to be non-mailable shall be fined not
more than $5000, or imprisoned not more than ten years or both'"
This Bill would simply deny use of the Federal mails
for solicitation of insurance within any state which forbids such
activity except by licensed companies. I realize that use of
the mails is not indicative of a company's general practices.
But such is the method, unfortunately, too often employed by those
who would misrepresent, avoid regulations and escape taxation.
I am convinced that any such legislation of this nature
must be drafted in its final form in the closest consultation
GERALD
Page 10
noTonly with the regulatory insurance bodies of the states, but
with advice from the legitimate insurance industry as well. I
would sincerely hope such a legislative proposal supplemented by
the efforts of the National Association of Insurance Commissioners
and the industry as a whole could put an end to malicious advertising
state
prohibited and mail order solicitations once and for all.
Let me assure you my efforts are wholeheartedly in your
behalf. If you have any criticisms or suggestions, I should
have them in order to work out a satisfactory solution.
Before proceeding further you should know that this
problem has been of considerable interest to the National Convention
of Insurance Commissioners since 1903, when at a convention in
ltimore, Md this group petitioned Congress in part as follows -
"The National Convention of Insurance Commissioners now
in session at Baltimore, Md. (1903), has the honor to
address you for the purpose of respectfully and earnestly
directing your attention to a serious condition of
affairs which the members of this convention in their
various jurisdictions, are powerless to remedy, and from
which substatial relief can only be obtained through
enactment of amendments to the present Postal Laws.
"We respectfully represent that to the best of our
knowledge, information and belief, the United States
Page 11
mails are being used for fraudulent and nefarious
purposes by certain concerns styling themselves
'insurance companies' and seeking by correspondence and
advertising matter sent through the mails to obtain
money for so-called fire insurance policies, these
policies being in most instances entirely worthless.
"None of the concerns in question is authorized to
transact business by the authority of any state in the
Union. They evade the laws of the states of their
domicile by writing no business therein, and evade
liability to arrest and prosecution in other states
by operating entirely through the medium of the mails,
"We respectfully urge that Congress take cognizance
of this matter to the end that proper laws may be
passed to meet the serious situation."
A bill was subsequently introduced in the Congress
and public hearings were held before the Senate Committee.
The records show the Commissioners were greatly surprised by
the determined opposition of "surplus line interests, and those
representing Lloyd's and inter-insurance." Apparently the
Commissioners were somewhat taken back by the intensity of the
opposition, and placated themselves by indicating that good
causes are seldom adopted quickly.
Page 12
At the 1904 meeting the Special Committee of the
Commissioners was recommended for continuance and after con-
siderable debate, which by no means discloses a unanimity of
opinion, a resolution continuing the committee and renewing
the Commissioners' recommendation to Congress for the enactment
of National legislation was adopted. There were those among
the Insurance Commissioners even in those halsyon days before
the Supreme Court declared insurance to be commerce, who
resisted the thought of going to the federal government for aid
in these matters. These Commissioners believed that the matter
of the control of unauthorized insurance, inasmuch as the
company conducting the unauthorized business was chartered in
some state, was up to the Commissioner in the domiciliary state
to do whatever was necessary to prevent the company from acting
in what then was called a "wildcat" fashion. However, a reading
of the debate will also disclose that there was by no means
the apprehension present in 1904 that there would be today in
requesting the federal government for help. It must be
remembered that in 1904 it was recognized that as long as the
business was safe from the federal anti-trust laws, it wouldn't
hurt too much to have the government assist in the stamping out
of these unauthorized practices which were made possible only
by the use of the mails, over which the government had exclusive
jurisdiction.
FORD & LIBRARY GERALD
Page 13
For a period of 30 years, from 1905 to 1935, there
was an apparent lull in this struggle against so-called "wildcat"
companies. However, in 1935, a former colleague, the late
Rep. Sam Hobbs, of Alabama, introduced a bill in the House of
Representatives which revived the issue.
1938 Proceedings of the NAIA, 69th session, at New York City
contained a report of the Executive Committee, and the opening
sentence is as follows, "This subject (unauthorized insurance)
much as
has perhaps been discussed as/any in this Association and little
has been done about it." The committee reviewed and acknowledged
that there were two ways in which these evils can be attacked:
one is close cooperation with the postal authorities of the
federal government; the second "is for the states which now
permit such companies to organize and embark upon a piratical
course in other states to pass proper legislation which will make
the continuance of such a course impossible."
In the next few years this problem received considerable
attention from the State Commissioners, the American Bar Association
and the industry as ahole. The Commissioners by 1939 apparently
felt the solution rested on the State level, and the final
sentences of a report by the Chairman of the Commissioners
Committee on Unauthorized Insurance is interesting. "It is my
opinion that this troublesome matter (unauthorized insurance) can
best be cured only through the cooperation of each and every
FORD & LIBRARY GERALD
Page 14
member of this body. I am sure that if all the Commissioners resolve to take
a firm stand against this racket, much good will be accomplished."
Apparently Congressman Hobbs persisted in his desire for corrective fe
federal legislation. By 1941 the NAIC approved a resolution condemning the
Hobbs' proposals, but at the same time recommended that each Commissioner
prepare and sponsor in their respective states a statute which would prohibit
any company domiciled within the state to transact any business in states in
which they were not licensed.
Congressman Hobbs who had spearheaded this legislative action for
many years voluntarily retired from Congress in 1950. and subsequently passed
away in 1951. Nevertheless the problem still persists.
In 1954 meetings of theNAIC, Commissioner Dickey of Oklahoma
sponsored an important resolution on this subject, and as a result the overall
problem was and is on the agenda of the Commissioners. As an implementation
of the Dickey resolution the various Commissioners were circularized with a
letter asking them to supply certain data. Unfortunately limited number of Commissioners
have responded indicating little real enthusiasm for the Dickey resolution,
nevertheless in my opinion it is worthy of careful study.
It seems to me the introduction of my suggested bill would rouse
many who objected to the Hobbs bills, but from my analysis to date my initial
draft doesn't appear to raise some of the problems feared by some in your
industry. No doubt there will be many conscientious opponents to any further
federal legislation
FOR
GERALD
Page 15
of any nature, but perhaps the raising of the issue at this time
will have a desirable effect in stimulating better answers than
we have at present. The problem is with all of us; admittedly
progress has been made but the public will not be satisfied
until there is a more satisfactory solution.
Another subject of concern to your industry is the
activity of non-licensed carriers which, however, are permitted
to write the extraordinary risk or to conduct an excess or
surplus line business within our state. I find this matter
extremely technical and would not presume to offer a quick and
easy solution. It does seem that so long as a kind or amount
of coverage is not available in the admitted market, we must
provide agents with an outlet to other sources.
I believe non-admitted outlets should be regulated for
protection to policyholders and, as you know, such regulations
already exist. Whether present regulations should be revised is
a question that I am not attempting now to answer. I am convinced
however from my analysis of the problem that the entire subject
should be left to individual state jurisdiction.
Obormoly
I have not resolved the current problems of your profes-
A
sion, but I hope you will think my suggestions worthy of considera-
tion. To be honest I have moved into this controversial field
with some fear and trepedation, and the more I saw, the greater
GERALD
Page 16
my apprehension. I would be most remiss if I failed to pay generous
tribute to Hildy and your State Association for invaluable
assistance in providing me with necessary background and factual
information. I happen to be a staunch supporter of trade
associations, particularly when under the capable management dis-
played by your Detroit and State Organization.
Over the years I have never known your associations to
support any principle that was not ultimately in the public
interest, So long as this attitude continues and I am positive that
it will, public officials will work closely with you ladies and
gentlemen of a great profession which means so much to the
economy and well being of our State and Nation.
2 -
Speech by Representative Gerali R. Ford, Jre,
Fifth District - Michigan.
Annual Banquet * Detroit Association of Insurance Agents
January 13, 1955
"The Federal Government and Mail Order and Unauthorized Insurance"
History records through the eyes of Marco Polo some of the first observa-
tions of the basic fundamentals of insurance. While in China he saw oriental merchants
taking their goods to market cross dangerous rapids only after carefully dividing
each merchant's goods among the cargoes of all the boats. In this way, risk by any
individual was minimized and equally shared by all.
These shrewd oriental merchants knew most of the boats would cross the
rapids unharmed; but those that didn't wouldn't carry one of their number to financial
ruin and the loss of much labor. The alternative carried to destruction only a fraction
of the property of any individual merchant,
More recently a group of adverturous Englishmen began a custom of meeting
regularly in Baward U
the merbants were shippers who sent
their goods by lamge sailing vessels to the far corners of the globe. The array of
worldwide destinations and the bulky cargoes outdated the ancient oriental practice
of dividing equally e the actual goods being transported.
These businessmen would post information at Lloyd's indicating the value
of their respective vessels with details about the cargoes and proposed trip. Lloyd's
would prepare a document indicating the monetary value relative to the risk and perils
of the voyage. Then the men at Lloyd's could sign the document showing the amount
of liability they individually assumed.
These men made a more complex adaptation of the theory of insurance witnessed
by Marco Polo years before, but demanded by the greater envolvements of the newer age.
Today the theory behind insurance remains unchanged since the days of Marco
Polo and the early beginnings of Lloyd's. But the actual applications of this theory
have undergone vast changes since Lloyd's. The complexities and technicalities of
modern day underwriters rivals, if not betters those of any other modern day establish-
ment. Indeed, I believe one of our American life insurance companies is still conceded
to be the largest single private enterprise in the world, Coupled with this rapid
and tremendous growth of the insurance business historically have come correspondingly
vast, intricate and certainly controversial problems,
GERALD FORD LIBRAR,
Page 2
I have always been intensely interested in the historical origins of the
insurance business. But even more, I continue to be impressed by the basic fundamentals
of the business which have not and cannot change. Both the oriental merchants and the
Underwriters at Lloyd's realized that indemnification of the unfortunate few was
wholly dependent upon there being a fortunate many. The business of insurance cannot
survive without adherence to that elementary truth.
If the fortunate many are to pay the losses of the unfortunate few, then our
second basic principle of the business is obviously, How much? Recovery of the oriental
merchant was limited to his goods contained on boats which unsuccessfully crossed the
rapids. The underwriters at Lloyd's simply agreed to offer a monetary settlement to
the extent of their financial loss interest has been reaffirmed by our present day
courts many times.
As a matter of fact, it is significant to note that an insurance transaction
which offered a settlement in excess of a loss interest would in effect be affording
a prize. It is only the absence of a prize which distinguishes the business of
insurance from a lottery; an illegal endeavor in the United States, Your business
contains the elements of chance and consideration, but lacks the prize necessary to
classification as a lottery.
I have not gone into this exceedingly brief sketch of your business in an
attempt to be entertaining and otherwise noncommittal. Instead, I have done so because
it is my unwavering belief as a public official, though a comparative layman in the
insurance field, that a great deal of our present problem must be analyzed and any
corrective action taken in terms of its relation to the basic fundamentals of the
business.
If the fortunate many become too few, or the unfortunate few too many, we
destroy a basic fundamental of the business. Or. to use terminology of the trade, we
no longer have a favorable spread of risk necessary for survival, Therefore, it
follows that certain safeguards to protect this spread of risk must be incerporated
in policies of insurance.
All of which means to me that insurance policies contain exclusions which
are necessary to the continued success of the company and protection of the policy-
holder's premiums given it in trust. I am not one who believes for a moment that any
policy of insurance could endure devoid of all exclusions, regardless of the premium
charged.
Following the Federal Trade Commission's action last October against
GERALD
seventeen insurance companies, I examined each of the complaints issued by the Com-
mission. I have been concerned during the ensuing months that many of those engaged
in your business have not clearly understood that the allegations of the Commission
were based solely on false and misleading advertising; nothing more and nothing less,
Page 3
I have already expressed my conviction that certain insurance policy exclu-
sions are necessary to protect the fundamentals of the business. I would challenge
the Federal Trade Commission's authority, or propriety, in questioning the aspect of
the coverage involved. But this the Commission didn't do. It simply objected to
alleged misrepresentation in the advertising and explanation of the policies. None
of us, in good conscience could justify this practice, if the same be true.
There is no doubt that the action of the Federal Trade Commission reflected
adversely on insurance as a whole in the minds of many not familiar with the techni-
calities of the business. This is most regretable, but it is not unlike numerous
other trades or businesses where the sins of the few must be shared by the many who
are honest, scrupulous and rendering a public service. I seriously question that the
recognized accomplishments of your profession, and the insurance business generally,
can be diminished by any such unfavorable but brief adverse publicity.
I am a firm believer in free enterprise, and wholly oppose the unwarranted
encroachment of the federal government in fields when the states can best do the job,
but is recognized in our present day society that there shall be government regula-
tion of private business when public interests are at stake. Such regulation however
should be aimed at the small minority of a private industry, such as in yours, who
may be conducting abusive practices which conceivably reflect on the whole industry.
I believe the regulations imposed by present state insurance departments are
for the most part adequate in containing competition of the business within reasonable
bounds. The co-called standard provisions of the accident and health field are ample
evidence of the cooperation of state departments and the vast majority of companies.
It is my most sincere hope that the National Association of Insurance Com-
missioners, and the insurance industry itself, can strengthen the laws and the admin-
istrative regulations with regard to advertising. I know that our own Michigan Depart-
ment of Insurance has always exercised considerable jurisdiction over advertising
practices of licensed companies, and with apparent success under current statutes.
Mail order insurance is similar although it offers a somewhat different
problem in currently stretching our state regulations. = have been advised that of the
seventeen companies named in the Federal Trade Commission's charges, only three are
licensed in Michigan, yet most have conducted mail campaigns in our State,
Especially during the past months Michigan has been flooded by offerings of
mail order insurance. There is no definite way of telling how many mail solicitations
have been made in Michigan, but it appears that based on automobile registrations they
could to several hundred thousands of dollars.
Figures from the Insurance Commissioner of the State of Missouri show some
GERAL FORD
Page 4
indication of the extent of this mail order business as it originates from four
companies in Missouri who have been selling policies by mail in Michigan.
These companies aren't licensed in this State, and our Department of
Insurance does not have jurisdiction over them as it does over licensed companies
with regard to capital, surplus, reserves, terms of the policy, examinations or any
other matter.
During 1953, one of these companies alone, by name the Automobile Owners
Safety Insurance Company, collected more than $81,000 in premiums from Michigan resi-
dents on $5.00 policies which represents a grand total of more than 16,000 policies
sold in Michigan in one year by one unlicensed outstate company.
In addition three other companies have reported to the Insurance Commissioner
in Missouri business in Michigan reaching substantial amounts, It has been estimated
that a minimum of $250,000 in premiums have been taken out of Michigan by these three
companies in 1953. And it might interest you to know that one of these companies,
Old Am rican Insurance Company of Kansas City, on a nationwide basis, collected
$2,285,000 in premiums in 1953.
The Michigan State Legislature is helpless to prevent this mail order business
flowing over its borders. Mail order sales of insurance are being made in violation
of Michigan law under which the sale of mail order insurance by Michigan licensed
companies is not allowed. The trouble is; these companies, such as those in Missouri,
need not and are not licensed by Michigan in order to sell insurance by mail in our state.
With these facts in mind it appears that Federal legislation may be needed
to strengthen state regulation of the insurance business, Let me re-emphasize that
point - Federal legislation to strengthen state regulation. Frankly I started out with
the positive assumption that I would prepare a bill to accomplish this objective, and
here is what I had in mind,
"That chapter 83 of title 18 of the United S+ates Code (relating to crimes in
connection with the postal service) is amended by adding at the end thereof the fol-
lowing new section: 11733. Solicitation of Insurance through the Mails. - Every letter
circular, postal card, or pamphlet which is addressed to a place in a State where sales
of insurance by mail by insurers licensed by the State are prohibited, and which contains
an offer, solicitation, or advertisement concerning the sale of insurance by an insurer
not licensed by the State, is non-mailable and shall not be conveyed in the mails or
delivered from any post office or by any letter carrier.
"Whoever uses or attempts to use the mails or Postal Service of the United
States for the transmission of any matter declared by this section to be non-mailable
shall be fined not more than $5000, or imprisoned not more than ten years or both!"
Page 5
This Bill would simply deny use of the Federal mails for solicitation of
insurance within any state which forbids such activity except by licensed companies.
I realize that use of the mails is not indicative of a company's general practices.
But such is the method, unfortunately, too often employed by those who would misre-
present, avoid regulations and escape taxation.
I am convinced that any such legislation of this nature must be drafted in
its final form in the closest consultation not only with the regulatory insurance
bodies of the states, but with advice from the legitimate insurance industry as well.
I would sincerely hope such a legislative proposal supplemented by the efforts of the
National Association of Insurance Commissioners and the industry as a whole could put
an end to malicious advertising and mail order solicitations once and for all.
Let me assure you my efforts are wholeheartedly in your behalf, If you have
any criticisms or suggestions, I should have them in order to work out a satisfactory
solution.
Before proceeding further you should know that this problem has been of
considerable interest to the National Convention of Insurance Commissioners since
1903, when at a convention in Baltimore, Md., this group petitioned Congress in part
as follows -
"The National Convention of Insurance Commissioners now in session at
Baltimore, Md. (1903), has the honor to address you for the purpose of respect-
fully and earnestly directing your attention to a serious condition of affairs
which the members of this convention in their various jurisdictions, are powerless
to remedy. and from which substantial relief can only be obtained through enact-
ment of amendments to the present Postal Laws.
"We respectfully represent that to the best of our knowledge, information
and belief, the United States mails are being used for fraudulent and nefarious
purposes by certain concerns styling themselves 'insurance companies' and seeking
by correspondence and advertising matter sent through the mails to obtain money for
so-called fire insurance policies, these policies being in most instances entirely
worthless.
"None of the concerns in question is authorized to transact business by the
authority of any state in the Union. They evade the laws of the states of their
domicile by writing no business therein, and evade liability to arrest and prose-
cution in other states by operating entirely through the medium of the mails.
"We respectfully urge that Congress take cognizance of this matter to the
end that proper laws may be passed to meet the serious situation."
GERALD (deval)
Page 6
A bill was subsequently introduced in the Congress and public hearings were
held before the Senate Committee. The records show the Commissioners were greatly
surprised by the determined opposition of "surplus line interests, and those repre-
senging Lloyd's and inter-insurance," Apparently the Commissioners were somewhat
taken back by the intensity of the opposition, and placated themselves by indicating
that good causes are seldom adopted quickly.
At the 1904 meeting the Special Committee of the Commissioners was recom-
mended for continuance and after considerable debate, which by no means disclosed
a unanimity of opinion, a resolution continuing the committee and renewing the Com-
missioners' recommendation to Congress for the enactment of National legislation was
adopted. There were those among the Insurance Commissioners even in those halcyon
days before the Supreme Court delcared insurance to be commerce, who resisted the
thought of going to the federal government for aid in these matters, These Cem-
missioners believed that the matter of the control of unauthorized insurance, inasmuch
as the company conducting the unauthorized business was chartered in some state, was
up to the Commissioner in the domiciliary state to do whatever was necessary to pre-
vent the company from acting in what then was called a "wildcat" fashion. However,
a reading of the debate will also disclose that there was by no means the apprehen-
sion present in 1904 that there would be today in requesting the federal government
for help. It must be remembered that in 1904 it was recognized that as long as the
business was safe from the federal anti-trust laws, it wouldn't hurt too much to have
the government assist in the stamping out of these unauthorized practices which were
made possible only by the use of the mails, over which the government had exclusive
jurisdiction.
For a period of 30 years, from 1905 to 1935, there was an apparent lull in
this struggle against so-called "wildcat" companies. However, in 1935, a former
colleague, the late Rep. Sam HoBbs, of Alabama, introduced a bill in the House of
Representatives which revived the issue.
1938 Proceedings of the NAIA, 69th session, at New York City, contained a
report of the Executive Committee, and the opening sentence is as follows, "This
subject (unauthorized insurance) has perhaps been discussed as much as any in this
Association and little has been done about ito" The committee reviewed and acknowledged
that there were two ways in which these evils can be attacked: one is close coopera-
tion with the postal authorities of the federal government; the second "is for the
states which now permit such companies to organize and embark upon a piratical course
in ther states to pass proper legislation which will make the continuance of such a
course impossible."
Page 7
In the next few years this problem received considerable attention from the
State Commissioners, the American Bar Agsociation and the industry as awhole. The
Commissioners by 1939 apparently felt the solution rested on the State level, and the
final sentences of a report by the Chairman of the Commissioners Committee on Unauth-
orized Insurance is interesting. "It is my opinion that this troublesome matter
(unauthorized insurance) can best be cured only through the cooperation of each and
every member of this boy. I am sure that if all the Commissioners resolve to take a
firm stand against this racket, much good will be accomplished."
Apparently Congressman Hobbs persisted in his desire for corrective federal
legislation. By 1941 the NAIC approved a resolution condemning the Hobbs' proposals,
but at the same time recommended that each Commissioner prepare and sponsor in their
respective states a statute which would prohibit any company domiciled within the
state to transact any business in states in which they were not licensed.
Congressman Hobbs who had spearheaded this legislative action for many years
voluntarily retired from Congress in 1950. and subsequently passed away in 1951.
Nevertheless the problem still persists.
In 1954 meetings of the NAIC, Commissioner Dickey of Oklahoma sponsored
an important resolution on this subject, and as a result the overall problem was and
is on the agenda of the Commissioners. As an implementation of the Dickey resolution
the various Commissioners were circularized with a letter asking them to supply certain
data. Only a limited number of Commissioners have responded indicating little real
enthusiasm for the Dickey resolution, nevertheless in my opinion it is worthy of
careful study.
It seems to me the introduction of my suggested bill would rouse many who
objected to the Hobbs bills, but from my analysis to date my initial draft doesn't
appear to raise some of the problems feared by some in your industry. No doubt there
will be many conscientious opponents to any further federal legislation of any nature,
but perhaps the raising of the issue at this time will have a desirable effect in
stimulating better answers than we have at present. The problem is with all of us;
admittedly progress has been made but the public will not be satisfied until there is
a more satisfactory solution.
Another subject of concern to your industry is the activity of non-licensed
carriers which, however, are permitted to write the extraordinary risk or to conduct
an excess or surplus line business within our state. I find this matter extremely
technical and would not presume to offer a quick and easy solution. It does seem that
so long as a kind or amount of coverage is not available in the admitted market, we
GERALD FORD LIBRARY
8
must provide agents with an outlet to other sources.
I believe non-admitted outlets should be regulated for protection to policy-
holders and, as you know, such regulations already exist. Whether present regulations
should be revised is a question that I am not attempting now to answer. I am con-
vinced however from my analysis of the problem that the entire subject should be left
to individual state jurisdiction,
I have not resolved the current problems of your profession, but I hope you
will think my suggestions worthy of consideration. To be honest I have moved into
this controversial field with some fear and trepidation, and the more I saw, the
greater my apprehension. I would be most remiss if I failed to pay generous tribute
to Hildy and your State Association for invaluable assistance in providing me with
necessary background and factual information. I happen to be a staunch supporter of
trade associations, particularly when under the capable management displayed by your
Detroit State organization.
Over the year.
associations to support any prindà-
ple that was not ultimately in the public interest. So long as this attitude continues
and I am positive that it will, public officials will work closely with you ladies
and gentlemen of a great profession which means so much to the economy and well being
of our
GERALD
Speech by Representative Gerald R. Ford, Jr.,
Fifth District - Michigan.
Annual Banquet - Detroit Association of Insurance Agents
January 13, 1955
"The Federal Government and Mail Order and Unauthorized Insurance"
History records through the eyes of Marco Polo some of the first observa-
tions of the basic fundamentals of insurance. While in China he saw oriental merchants
taking their goods to market cross dangerous rapids only after carefully dividing
each merchant's goods among the cargoes of all the boats. In this way, risk by any
individual was minimized and equally shared by all,
These shrewd oriental merchants knew most of the boats would cross the
rapids unharmed; but those that didn't wouldn't carry one of their number to financial
ruin and the loss of much labor. The alternative carried to destruction only a fraction
of the property of any individual merchant,
More recently a group of adverturous Englishmen began a custom of meeting
regularly in Edward Lloyd's coffee house, Here the merhants were shippers who sent
their goods by large sailing vessels to the far corners of the globe. The array of
worldwide destinations and the bulky cargoes outdated the ancient oriental practice
of dividing equally the actual goods being transported.
These businessmen would post information at Lloyd's indicating the value
of their respective vessels with details about the cargoes and proposed trip. Lloyd's
would prepare a document indicating the monetary value relative to the risk and perils
of the voyage. Then the men at Lloyd's could sign the document showing the amount
of liability they individually assumed.
These men made a more complex adaptation of the theory of insurance witnessed
by Marco Polo years before, but demanded by the greater envolvements of the newer age.
Today the theory behind insurance remains unchanged since the days of Marco
Polo and the early beginnings of Lloyd's. But the actual applications of this theory
have undergone vast changes since Lloyd's. The complexities and technicalities of
modern day underwriters rivals, if not betters those of any other modern day establish-
ment. Indeed, I believe one of our American life insurance companies is still conceded
to be the largest single private enterprise in the world, Coupled with this rapid
and tremendous growth of the insurance business historically have come correspondingly
vast, intricate and certainly controversial problems.
GERALO FORD LIBRARY
Page 2
I have always been intensely interested in the historical origins of the
insurance business. But even more, I continue to be impressed by the basic fundamentals
of the business which have not and cannot change. Both the oriental merchants and the
Underwriters at Lloyd's realized that indemnification of the unfortunate few was
wholly dependent upon there being a fortunate many. The business of insurance cannot
survive without adherence to that elementary truth.
If the fortunate many are to pay the losses of the unfortunate few, then our
second basic principle of the business is obviously, How much? Recovery of the oriental
merchant was limited to his goods contained on boats which unsuccessfully crossed the
rapids. The underwriters at Lloyd's simply agreed to offer a monetary settlement to
the extent of their financial loss interest has been reaffirmed by our present day
courts many times.
As a matter of fact, it is significant to note that an insurance transaction
which offered a settlement in excess of a loss interest would in effect be affording
a prize. It is only the absence of a prize which distinguishes the business of
insurance from a lottery; an illegal endeavor in the United States, Your business
contains the elements of chance and consideration, but lacks the prize necessary to
classification as a lottery.
I have not gone into this exceedingly brief sketch of your business in an
attempt to be entertaining and otherwise noncommittal. Instead, I have done so because
it is my unwavering belief as a public official, though a comparative layman in the
insurance field, that a great deal of our present problem must be analyzed and any
corrective action taken in terms of its relation to the basic fundamentals of the
business.
If the fortunate many become too few, or the unfortunate few too many, we
destroy a basic fundamental of the business. Or. to use terminology of the trade, we
no longer have a favorable spread of risk necessary for survival, Therefore, it
follows that certain safeguards to protect this spread of risk must be incerporated
in policies of insurance.
All of which means to me that insurance policies contain exclusions which
are necessary to the continued success of the company and protection of the policy-
holder's premiums given it in trust. I am not one who believes for a moment that any
policy of insurance could endure devoid of all exclusions, regardless of the premium
charged.
Following the Federal Trade Commission's action last October against
LIBRARY
seventeen insurance companies, I examined each of the complaints issued by the Com-
mission. I have been concerned during the ensuing months that many of those engaged
in your business have not clearly understood that the allegations of the Commission
were based solely on false and misleading advertising; nothing more and nothing less,
Page 3
I have already expressed my conviction that certain insurance policy exclu-
sions are necessary to protect the fundamentals of the business. I would challenge
the Faderal Trade Commission's authority, or propriety, in questioning the aspect of
the coverage involved. But this the Commission didn't do. It simply objected to
alleged misrepresentation in the advertising and explanation of the policies. None
of us, in good conscience could justify this practice, if the same be true.
There is no doubt that the action of the Federal Trade Commission reflected
adversely on insurance as a whole in the minds of many not familiar with the techni-
calities of the business. This is most regretable, but it is not unlike numerous
other trades or businesses where the sins of the few must be shared by the many who
are honest, scrupulous and rendering a public service. I seriously question that the
recognized accomplishments of your profession, and the insurance business generally,
can be diminished by any such unfavorable but brief adverse publicity.
I am a firm believer in free enterprise, and wholly oppose the unwarranted
encroachment of the federal government in fields when the states can best do the job,
but 24 is recognized in our present day society that there shall be government regula-
tion of private business when public interests are at stake. Such regulation however
should be aimed at the small minority of a private industry, such as in yours, who
may be conducting abusive practices which conceivably reflect on the whole industry.
I believe the regulations imposed by present state insurance departments are
for the most part adequate in containing competition of the business within reasonable
bounds, The co-called standard provisions of the accident and health field are ample
evidence of the cooperation of state departments and the vast majority of companies.
It is my most sincere hope that the National Association of Insurance Com-
missioners, and the insurance industry itself, can strengthen the laws and the admin-
istrative regulations with regard to advertising. I know that our own Michigan Depart-
ment of Insurance has always exercised considerable jurisdiction over advertising
practices of licensed companies, and with apparent success under current statutes.
Mail order insurance is similar although it offers a somewhat different
problem in currently stretching our state regulations. - have been advised that of the
seventeen companies named in the Federal Trade Commissi on's charges, only three are
licensed in Michigan, yet most have conducted mail campaigns in our State,
Especially during the past months Michigan has been flooded by offerings of
mail order insurance. There is no definite way of telling how many mail solicitations
have been made in M₁chigan, but it appears that based on automobile registrations they
could ":0 severe' hundred thousands of dollars.
FORD
Figures from the Insurance Commissioner of State of Missouri show GERAÇÃO some
LIBRARY
Page 4
indication of the extent of this mail order business as it originates from four
companies in Missouri who have been selling policies by mail in Michigan.
These companies aren't licensed in this State, and our Department of
Insurance does not have jurisdiction over them as it does over licensed companies
with regard to capital, surplus, reserves, terms of the policy, examinations or any
other matter.
During 1953, one of these companies alone, by name the Automobile Owners
Safety Insurance Company, collected more than $81,000 in premiums from Michigan resi-
dents on $5.00 policies which represents a grand total of more than 16,000 policies
sold in Michigan in one year by one unlicensed outstate company.
In addition three other companies have reported to the Insurance Commissioner
in Missouri business in Michigan reaching substantial amounts. It has been estimated
that a minimum of $250,000 in premiums have been taken out of Michigan by these three
companies in 1953. And it might interest you to know that one of these companies,
Old Am rican Insurance Company of Kansas City, on a nationwide basis, collected
$2,285,000 in premiums in 1953.
The Michigan State Legislature is helpless to prevent this mail order business
flowing over its borders. Mail order sales of insurance are being made in violation
of Michigan law under which the sale of mail order insurance by Michigan licensed
companies is not allowed. The trouble is; these companies, such as those in Missouri,
need not and are not licensed by Michigan in order to sell insurance by mail in our state.
With these facts in mind it appears that Federal legislation may be needed
to strengthen state regulation of the insurance business, Let me re-emphasize that
point - Federal legislation to strengthen state regulation. Frankly I started out with
the positive assumption that I would prepare a bill to accomplish this objective, and
here is what I had in mind,
"That chapter 83 of title 18 of the United States Code (relating to crimes in
connection with the postal service) is amended by adding at the end thereof the fol-
lowing new section: #1733. Solicitation of Insurance through the Mails. - Every letter
circular, postal card, or pamphlet which is addressed to a place in a State where sales
of insurance by mail by insurers licensed by the State are prohibited, and which contains
an offer, solicitation, or advertisement concerning the sale of insurance by an insurer
not licensed by the State, is non-mailable and shall not be conveyed in the mails or
delivered from any post office or by any letter carrier.
"Whoever uses or attempts to use the mails or Postal Service of the United
States for the transmission of any matter declared by this section to be non-mailable
shall be fined not more than $5000, or imprisoned not moe than ten years or both!"
GERALD FORD LIBRARY
Page 5
This Bill would simply deny use of the Federal mails for solicitation of
insurance within any state which forbids such activity except by licensed companies,
I realize that use of the mails is not indicative of a company's general practices.
But such is the method, unfortunately, too often employed by those who would misre-
present, avoid regulations and escape taxation.
I am convinced that any such legislation of this nature must be drafted in
its final form in the closest consultation not only with the regulatory insurance
bodies of the states, but with advice from the legitimate insurance industry as well.
I would sincerely hope such a legislative proposal supplemented by the efforts of the
National Association of Insurance Commissioners and the industry as a whole could put
an end to malicious advertising and mail order solicitations once and for all.
Let me assure you my efforts are wholeheartedly in your behalf, If you have
any criticisms or suggestions, I should have them in order to work out a satisfactory
solution.
Before proceeding further you should know that this problem has been of
considerable interest to the National Convention of Insurance Commissioners since
1903, when at a convention in Baltimore, Md., this group petitioned Congress in part
as follows -
"The National Convention of Insurance Commissioners now in session at
Baltimore, Md. (1903), has the honor to address you for the purpose of respect-
fully and earnestly directing your attention to a serious condition of affairs
which the members of this convention in their various jurisdictions, are powerless
to remedy, and from which substantial relief can only be obtained through enact-
ment of amendments to the present Postal Laws.
"We respectfully represent that to the best of our knowledge, information
and belief, the United States mails are being used for fraudulent and nefarious
purposes by certain concerns styling themselves 'insurance companies' and seeking
by correspondence and advertising matter sent through the mails to obtain money for
so-called fire insurance policies, these policies being in most instances entirely
worthless.
"None of the concerns in question is authorized to transact business by the
authority of any state in the Union. They evade the laws of the states of their
domicile by writing no business therein, and evade liability to arrest and prose-
cution in other states by operating entirely through the medium of the mails.
"We respectfully urge that Congress take cognizance of this matter to the
end that proper laws may be passed to meet the serious situation."
GERALD FORD TERAA
Page 6
A bill was subsequently introduced in the Congress and public hearings were
held before the Senate Committee. The records show the Commissioners were greatly
surprised by the determined opposition of "surplus line interests, and those repre-
senging Lloyd's and inter-insurance." Apparently the Commissioners were somewhat
taken back by the intensity of the opposition, and placated themselves by indicating
that good causes are seldom adopted quickly.
At the 1904 meeting the Special Committee of the Commissioners was recom-
mended for continuance and after considerable debate, which by no means disclosed
a unanimity of opinion, a resolution continuing the committee and renewing the Cem-
missioners' recommendation to Congress for the enactment of National legislation was
adopted. There were those among the Insurance Commissioners even in those halcyon
days before the Supreme Court delcared insurance to be commerce, who resisted the
thought of going to the federal government for aid in these matters, These Cem-
missioners believed that the matter of the control of unauthorized insurance, inasmuch
as the company conducting the unauthorized business was chartered in some state, was
up to the Commissioner in the domiciliary state to do whatever was necessary to pre-
vent the company from acting in what then was called a "wildcat" fashion. However,
a reading of the debate will also disclose that there was by no means the apprehen-
sion present in 1904 that there would be today in requesting the federal government
for help. It must be remembered that in 1904 it was recognized that as long as the
business was safe from the federal anti-trust laws, it wouldn't hurt too much to have
the government assist in the stamping out of these unauthorized practices which were
made possible only by the use of the mails, over which the government had exclusive
jurisdiction.
For a period of 30 years, from 1905 to 1935, there was an apparent lull in
this struggle against so-called "wildcat" companies. However, in 1935, a former
colleague, the late Rep. Sam HoBbs, of Alabama, introduced a bill in the House of
Representatives which revived the issue.
1938 Proceedings of the NAIA, 69th session, at New York City, contained a
report of the Executive Committee, and the opening sentence is as follows, "This
subject (unauthorized insurance) has perhaps been discussed as much as any in this
Association and little has been done about it." The committee reviewed and acknowledged
that there were two ways in which these evils can be attacked: one is close coopera-
tion with the postal authorities of the federal government; the second "is for the
states which now permit such companies to organize and embark upon a piratical course
in ther states to pass proper legislation which will make the continuance of such a
course impossible."
BERALD FORD JBRART
Page 7
In the next few years this problem received considerable attention from the
State Commissioners, the American Bar Association and the industry as awhole. The
Commissioners by 1939 apparently felt the solution rested on the State level, and the
final sentences of a report by the Chairman of the Commissioners Committee on Unauth-
orized Insurance is interesting. "It is my opinion that this troublesome matter
(unauthorized insurance) can best be cured only through the cooperation of each and
every member of this boy. I am sure that if all the Commissioners resolve to take a
firm stand against this racket, much good will be accomplished."
Apparently Congressman Hobbs persisted in his desire for corrective federal
legislation. By 1941 the NAIC approved a resolution condemning the Hobbs' proposals,
but at the same time recommended that each Commissioner prepare and sponsor in their
respective states a statute which would prohibit any company domiciled within the
state to transact any business in states in which they were not licensed.
Congressman Hobbs who had spearheaded this legislative action for many years
voluntarily retired from Congress in 1950. and subsequently passed away in 1951.
Nevertheless the problem still persists!
In 1954 meetings of the NAIC, Commissioner Dickey of Oklahoma sponsored
an important resolution on this subject, and as a result the overall problem was and
is on the agenda of the Commissioners. As an implementation of the Dickey resolution
the various Commissioners were circularized with a letter asking them to supply certain
data. Only a limited number of Commissioners have responded indicating little real
enthusiasm for the Dickey resolution, nevertheless in my opinion it is worthy of
careful study.
It seems to me the introduction of my suggested bill would rouse many who
objected to the Hobbs bills, but from my analysis to date my initial draft doesn't
appear to raise some of the problems feared by some in your industry. No doubt there
will be many conscientious opponents to any further federal legislation of any nature,
but perhaps the raising of the issue at this time will have a desirable effect in
stimulating better answers than we have at present. The problem is with all of us;
admittedly progress has been made but the public will not be satisfied until there is
a more satisfactory solution.
Another subject of concern to your industry is the activity of non-licensed
carriers which, however, are permitted to write the extraordinary risk or to conduct
an excess or surplus line business within our state, I find this matter extremely
technical and would not presume to offer a quick and easy solution. It does seem that
so long as a kind or amount of coverage is not available in the admitted market, we
GERALD
Page 8.
must provide agents with an outlet to other sources.
I believe non-admitted outlets should be regulated for protection to policy-
holders and, as you know, such regulations already exist, Whether present regulations
should be revised is a question that I am not attempting now to answer. I am con-
vinced however from my analysis of the problem that the entire subject should be left
to individual state jurisdiction,
I have not resolved the current problems of your profession, but I hope you
will think my suggestions worthy of consideration. To be honest I have moved into
this controversial field with some fear and trepidation, and the more I saw, the
greater my apprehension. I would be most remiss if I failed to pay generous tribute
to Hildy and your State Association for invaluable assistance in providing me with
necessary background and factual information. I heppen to be a staunch supporter of
trade associations, particularly when under the capable management displayed by your
Detroit and State organization.
Over the years never nown your associations to support any prindh-
ple that was not ultimately in the public interest. So long as this attitude continues
and I am positive that it will, public officials will work closely with you ladies
and gentlemen of a great profession which means so much to the economy and well being
of our tat- NT "ion
FORD & LIBRAR GERALD