percent of the Nation's agriculture cooperatives sell less than $15 million annually.

You had also asked or raised the question as to whether the FTC could really help the Department of Agriculture in providing additional expertise. According to the statistics of the Department of Agriculture, they employ over 500 agricultural economists in the Department of Agriculture, and it's rather mindboggling to try to figure out how the FTC is going to add to that expertise.

Also earlier on, Mr. Florio had mentioned that this committee was looking for ways to take speedy action to reauthorize the Federal Trade Commission, and one of the things that we might point out is that during the last Congress, the House adopted the prohibitions in the House version that we are acting for here today. The Senate did not. However, once the House and Senate versions got to the Conference Committee, that was the only issue that the House and Senate conferees were able to agree upon prior to the bill dying in conference, and that was that the Senate receded to the House position on that.

Now we have the Senate recently passing a version of the FTC reauthorization bill in which they have adopted that language that the conferees agreed upon in the last Congress. So to the extent that the House also adopts that same language, again in this Congress, this particular issue can be resolved.

Thank you.

Mr. LUKEN. Thank you. Mr. Randall, we'll give you the last word, if it's brief.

Mr. RANDALL. Very brief, sir. That was adopted, again I would say, without any hearings either in the House or the Senate. As he referred to it, there were no hearings, and I would point out Footnote No. 2 on page 10 of my prepared statement in which Senator Boschwitz called for the FTC to have the authority restored, because he was not getting on the Senate side the kind of cooperation from the Department of Agriculture.

Mr. LUKEN. Thank you, Mr. Randall, Mr. Wagner, and Mr. Quarles. We appreciate your testimony.

Since we're moving right along, let us call the rest of the witnesses in one panel, since they all seem to be compatible:

Mr. William Suttle, American Insurance Corp.; Mr. Thomas Sick of the Physicians Mutual Insurance Co.; Ms. Linda Jenckes, who is with Mr. Sick; Mr. Thomas Wenning, the Small Business Legislative Council; Mr. John Rector of the Retail Druggists; Brian Johnson, Council on Insurance, American Dental Association; Mr. James Hawkins of the Opticians Association of America.

A very distinguished panel. We appreciate your coming. We have the written statements of each and every one of you, and without objection, your statements will be received into the record, and unless there is some indication we should go in some other order, we will start from my left to right.

Mr. Suttle of the American Insurance Association. Mr. Suttle, your statement has been received. You may proceed.

STATEMENTS OF WILLIAM W. SUTTLE, SENIOR VICE PRESIDENT, AMERICAN INSURANCE ASSOCIATION; THOMAS O. SICK, ACCOMPANIED BY LINDA JENCKES, ON BEHALF OF HEALTH INSURANCE ASSOCIATION OF AMERICA; THOMAS F. WENNING, CHAIRMAN, ANTITRUST COMMITTEE, SMALL BUSINESS LEGISLATIVE COUNCIL; JOHN M. RECTOR, VICE PRESIDENT AND GENERAL COUNSEL OF GOVERNMENT AFFAIRS, NATIONAL ASSOCIATION OF RETAIL DRUGGISTS; BRIAN JOHNSON, SECRETARY, COUNCIL ON INSURANCE, AMERICAN DENTAL ASSOCIATION; AND JAMES D. HAWKINS, EXECUTIVE DIRECTOR, OPTICIANS ASSOCIATION OF AMERICA

Mr. SUTTLE. Thank you, Mr. Chairman and Mr. Whittaker and members of the subcommittee. I do appreciate the opportunity to be here, and I appreciate your patience in hearing us out. I will be as brief as possible and see if I can't do what I can to assist the subcommittee in catching up this morning.

The American Insurance Association's interest in the FTC reauthorization is simple, and it has to do exclusively with the limited insurance exemption contained in the-or set out in the McCarranFerguson Act.

Quickly, those who oppose the insurance exemption would have you believe several things that are simply not correct, and I would like to, in just a moment, address those.

First, they would imply that the insurance provision is a new phenomenon. In fact, it spans almost 40 years to the original date set out in the McCarran-Ferguson Act. In 1980, the Congress, when it last enacted a free-standing FTC reauthorization bill merely clarified this insurance exemption and the Federal Trade Commission's jurisdiction. During the late 1970's, the Congress learned that the FTC was involved in farreaching and unrestrained investigations of insurance activities. The Commission was refusing to observe the limits on its jurisdiction contained in the McCarran Act. Not only had the FTC initiated some 30 insurance investigative actions, but it was also trying to begin trade regulation proceedings in areas already being regulated by the several States. The Congress then in its wisdom in the 1980 FTC reauthorization legislation removed all doubt as to the Commission's authority to conduct investigations of the business of insurance, and in that same Act the Congress created a simple and responsible vehicle to trigger FTC insurance investigations when the same may be deemed necessary.

By amending the Federal Trade Commission Act in 1980 and adding subsection 6(h), the Congress may now specifically call for an FTC insurance investigation with a simple majority vote of either the House or the Senate Commerce Committees. That authority has been used by this committee, the full committee of the House, on several occasions, and we have been pleased to recognize that Congressional prerogative and to cooperate in studies that have been called for.

Our critics also suggest that our limited FTC exemption is unique. Once again, they overlook reality. The same section 6 of the FTC Act, amended in 1980 to allow either Commerce Committee to initiate studies, also contains specific exemptions for other

industries. Banks, savings and loan operations, the communications industry, common carriers, and public utilities have similar exemptions from FTC jurisdiction.

All of these industries have shields from Federal Trade Commission scrutiny for the same good reason. Each shares the common characteristic of being extensively regulated by the several States or by other Federal agencies. Certainly our industry is heavily regulated in all of the several States.

Still another myth that is spread by opponents of the FTC insurance exemption is that it is broad and inclusive. Once more that is incorrect and blatantly misleading. Since it was enacted more than 40 years ago, the prohibition on FTC jurisdiction over insurance has been narrow in scope. It only applies where the activity involved is both (1) the business of insurance, as has been narrowly defined by the Courts and (2) it is regulated by State law. Even when these two tests are met, the very McCarran-Ferguson Act, which establishes the exemption, limits it even further. The FTC has full jurisdiction over incidents of boycott, coercion, or intimidation.

Regardless of what might be said, both the FTC and the Congress recognize the limited nature of the restrictions placed on the Commission by the McCarran Act. The Commission now has pending before it an appeal from an order of an Administrative Law Judge relating to title insurance. That proceeding was initiated by an FTC complaint alleging that certain loan closing procedures are not part of the "business of insurance," and consequently are subject to FTC oversight and regulation.

Within the past 2 years, the FTC has closed by Consent Order a proceeding against a major insurance agents organization. That action alleged boycott on the part of the agents.

Finally, just a couple of thoughts about S. 677, the Senate-passed FTC reauthorization bill. The subcommittee no doubt knows that on the floor, the Senate added a provision to direct the FTC to undertake two studies relating to insurance. One of those studies relates directly to our members, an investigation of competition in certain commercial liability lines. AIA is convinced that the issues that the Senate bill would have the FTC address have already been thoroughly investigated by State regulators throughout the country. Some have been explored recently at the Federal level. The Administration's Tort Policy Working Group concluded again just this year that commercial casualty insurance is highly competitive with little market concentration and few, if any, barriers to market entry.

We would contend, therefore, that an FTC investigation will shed no new light on these lines of business, which have experienced problems with cost increases and availability in recent years.

We are also concerned that the cost to insurers in complying with the studies in section 19 will be substantial.

In spite of our concerns, if the Congress determines that an FTC investigation of certain casualty lines of business, as embodied in S. 677 is appropriate, we certainly prefer this approach to giving the Commission some unrestrained and overreaching mandate. Should you decide to pursue section 19 of S. 677, we will cooperate fully, as we have in the past, to ensure that the FTC has the best infor

mation available to complete its mandate, and we would also be anxious to work with you to guarantee that any such study addresses the issues which you choose to have addressed in the broadest and the best perspective.

Mr. Chairman, I'll be more than happy to respond to your questions as the time allows, and I thank you once again for your time and patience.

[The prepared statement of Mr. Suttle follows:]

TESTIMONY OF WILLIAM W. SUTTLE, SENIOR VICE PRESIDENT, AMERICAN INSURANCE ASSOCIATION

Mr. Chairman and members of the Hazardous Pollutants and Transportation Subcommittee, I am William Suttle, Senior Vice President for Political Affairs of the American Insurance Association (AIA). I appreciate the opportunity to appear before you today on behalf of our member companies in support of the retention of the insurance industry's limited exemption from studies or investigations by the Federal Trade Commission (FTC).

As the Chairman and members of this Subcommittee know, the business of insurance, to the extent it is regulated by the states, is exempt from the jurisdiction of the Federal Trade Commission except in cases involving boycotts, coercion or intimidation, by virtue of the McCarren-Ferguson Act. This exemption is not unique as it similarly applies in varying degrees to the banking industry, savings and loans, the securities industry, the communications industry, common carriers and public utilities. All of these industries are granted this shield from full Federal Trade Commission scrutiny because they share the common characteristic of being subject to extensive regulation by the states or other Federal agencies. This is certainly true of the insurance industry which is heavily regulated at the states level.

Activities of insurers which do not fit within the definition of "the business of insurance" or are not regulated by the states, are not protected from FTC investigation.

Current law, clarifying the investigatory authority of the Federal Trade Commission over the insurance industry was enacted in 1980 when the Congress last passed a free-standing Federal Trade Commission reauthorization bill. That final bill incorporated an amendment offered by Senator Cannon to S. 1991 in the Senate Commerce Committee. It did not provide a total exemption for insurers. Instead, it said that the commission may only conduct studies at the request of either the House or Senate Commerce Committees. We respect this Congressional prerogative to authorize specific FTC studies of our industry.

In many respects the Cannon amendment was a response to the problems which existed in the 1970's when the Federal Trade Commission sought to unilaterally extend its jurisdiction over the insurance industry in spite of the plain language of the McCarran-Ferguson Act. During that period the Commission had initiated no less than 30 separate insurance investigative proceedings costing millions of taxpayer dollars. Furthermore, the Commission was, at this same time, attempting to begin Trade Regulation Rule proceedings in areas already regulated by the states. It was subsequently determined by the Congress that the Federal Trade Commission had clearly overstepped its statutory authority.

Mr. Chairman, allow me at this point to elaborate further what we believe to be the proper but limited role of the Federal Trade Commission with regard to insurance as clarified by the Cannon Amendment in 1980.

Congressional hearings during the years leading up to the 1980 action, uncovered numerous Commission activities clearly outside its authority. The FTC had refused to observe and/or ignored the Congressionally imposed limits on its jurisdiction pursuant to the McCarran-Ferguson Act. As you and the Subcommittee know, the McCarran Act specifically gives the states the responsibility and the authority to regulate insurance free from FTC interference. However, despite this specific prohibition, during 1978 and 1979, Congress found that the FTC had undertaken a wideranging and free-wheeling program of unauthorized investigations of the insurance industry. These investigations had exactly the results the McCarran Act sought to avoid-interference with the states' appropriate right to regulate the business of in

surance.

In 1980, the House and Senate Commerce Committees undertook a thorough legal analysis of the statutory language and underlying legislative history of the McCarran Act. Both the plain wording of McCarran and the legislative history made it

clear that the authors of the Act intended, where the statutory prerequisites for exemption were satisfied, that the Federal Trade Commission had no jurisdiction and no authority to investigate the business of insurance. In particular, Congress in the McCarran Act, made no distinction between the provisions of the FTC Act governing the Commission's law enforcement function and those governing its separate fact finding function. In either case, where an activity comprises part of the "business of insurance" and is “regulated by State law," Congress divested the FTC of jurisdiction so as to eliminate the possibility that the States' regulatory efforts would be invalidated, impaired or superseded.

Accordingly, the Senate Commerce Committee and thereafter both houses of the Congress adopted the conference report agreeing that the FTC's authority must be clarified in order to prevent further Commission interference into state regulatory authority over the "business of insurance." The 1980 Act did, however, contain one exception to this prohibition as the FTC was given the authority to investigate the insurance industry when it received a specific request from either the Senate or House Commerce Committees.

The FTC Act of 1980 clarified any legal ambiguity which may have existed and confirmed the limitations that were imposed upon the Commission's ability to investigate certain insurance activities. Furthermore, the legislation prevented the FTC from undertaking any new investigations on its own and required the Commission to terminate virtually all of its ongoing studies that were taking place at that time. During the Senate's debate of the conference report containing the limited insurance exemption language, Senator Cannon stated, and I quote, "I am particularly disturbed by the Commission's attempts to substitute its judgement for that of the states on what is an appropriate regulatory philosophy. In the McCarran Act, Congress intended to leave the states freedom to choose whatever regulatory structure they deemed appropriate."

During this same debate, Senator Ernest F. Hollings added, "I cannot emphasize strongly enough that this amendment reaffirms the basic purpose of the McCarranFerguson Act-to leave the job of insurance regulation to the states."

The history of FTC activity since 1980 bears out the wisdom of the clarifying amendment. The spurious and expensive investigations that were never authorized by Congress were finally put to rest. Yet at the same time, the interests of consumers were protected by elected officials on the House and Senate Commerce Committees who have shown no reluctance in asking the FTC to investigate subjects relating to insurance which they viewed in the public interest.

I would like to remind you of some of the investigations of the insurance industry which have taken place since 1980. This should allay concerns expressed by some that the insurance industry is not subject to proper federal oversight.

In May of 1983 the House Energy and Commerce Committee requested the FTC to undertake a study of the availability and utility of information furnished consumers before the purchase of automobile insurance. The same Committee in 1983 also requested the FTC to conduct a study of the impact of state insurance rate bureaus and other collective ratemaking practices on competition with respect to property and casualty insurance for automobiles.

The FTC studies authorized by Congress were not limited to the property and casualty insurance industry. The FTC in late 1985 released the results of their study on the advantages and disadvantages of the different types of life insurance policies and the adequacy of consumer information about these policies. In 1986 the FTC was asked to provide a report on preferred provider organizations.

Most recently the Commission concluded a detailed investigation of several title insurance companies and argued successfully before a Commission Administrative Law Judge that certain title insurance practices are not protected by the McCarranFerguson Act. Although that decision is being appealed, the Administrative Law Judge did find that title insurance activities did not involve the spreading and sharing of risks. Within the past two years the FTC has also concluded an investigation, closed by a consent order, of alleged "boycott" activities by a large insurance agent organization.

DISCUSSION OF S. 677

As the Subcommittee is aware, legislation reauthorizing the Federal Trade Commission, S. 677, was considered and passed the United States Senate on April 8, 1987. Section 19 of this bill contains a provision, introduced by Senator Metzenbaum, requiring the Federal Trade Commission to conduct two separate studies relating to insurance. The first focuses on potentially deceptive practices in the sale of medigap policies. The second, which is of greater concern to AIA, calls for an in