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Kenneth P. Colby, Vice Chairman, National Grange Mutual Insurance Company.
R. S. Hanson, American Hardware Mutual Insurance Company.
R. E. Roberson, American Mutual Liability Insurance Company.
F. W. Purmort, Jr., Central Mutual Insurance Company.
Norman Lustig, Consolidated Mutual Insurance Company.
J. M. Sweitzer, Employers Mutual liability Insurance Company.
C. I. Buxton, II, Federated Mutual Implement and Hardware Insurance Company.
John W. Joanis, Hardware Mutual Casualty Company.
T. R. Lubking, Indiana Lumbermens Mutual Insurance Company.
G. W. Hopkins, Iowa National Mutual Insurance Company.
Frank L. Farwell, Liberty Mutual Insurance Company.
C. E. Nail, Lumbermens Mutual Insurance Company.
H. J. Lowry, Michigan Mutual Liability Company.
Howard D. Health, Northwestern Mutual Insurance Company.
Paul H. Dubuc, Shelby Mutual Insurance Company.
J. P. Craugh, Utica Mutual Insurance Company.

1969

Andrew M. Innes, Chairman, Middlesex Mutual Insurance Company.
Frank L. Farwell, Chairman-Elect, Liberty Mutual Insurance Company.
De Forest W. Abel, Jr., Vice Chairman, Automobile Mutual Insurance Co. of

America.
R. Burton Forbes, Vice Chairman, Attleboro Mutual Fire Insurance Company.
Vincent E. Hoyer, Vice Chairman, New Jersey Manufacturers Insurance

Company. R. S. Hanson, American Hardware Mutual Insurance Company. R. E. Roberson, American Mutual Liability Insurance Company. F. W. Purmort, Jr., Central Mutual Insurance Company. Norman Lustig, Consolidated Mutual Insurance Company. J. M. Sweitzer, Employers Mutual Liability Insurance Company. C. I. Buxton, II, Federated Mutual Implement and Hardware Insurance Company. Howard M. Betts, Grain Dealers Mutual Insurance Company. John W. Joanis, Hardware Mutual Casualty Company. James S. Kemper, Jr., Lumbermens Mutual Casualty Company. C. E. Nail, Lumbermens Mutual Insurance Company. Ralph J. Ladd, Michigan Mutual Liability Company. Howard D. Health, Northwestern Mutual Insurance Company. F. J. Orth, Northwestern Mutual Insurance Company. Victor T. Ehre, Utica Mutual Insurance Company.

(c) Net assessment income for fiscal year ended June 30, 1967, totaled $1,723,751 and assessment rate was .000958; for fiscal year June 30, 1968, the figure was $1,792,021 and the assessment rate was .000874; and for fiscal year ended June 30, 1969, the figure was $2,008,013 and the assessment rate was .000914. Assessments are computed by applying the assessment rate fixed quarterly by the Board of Directors, to the member company's net direct premiums less dividends to policyholders.

(d) Number of professional and non-clerical persons employed by Alliance and total salaries paid :

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(e) During the years in question, the Alliance did not provide any financial assistance to the Insurance Information Institute.

(f) We do not possess information indicating whether any of our member companies contributed to the support of the Insurance Information Institute during 1967, 1968, or 1969.

We appreciated the opportunity to submit testimony to your Subcommittee and this further opportunity to supply additional information and comment for the record. Sincerely,

ANDRE MAISONPIERRE.

AMERICAN MUTUAL INSURANCE ALLIANCE,

Washington, D.O., February 24, 1970. Hon. PHILIP A. HART, Chairman, Senate Antitrust and Monopoly Subcommittee, Committee on the

Judiciary, U.S. Senate, Washington, D.O. DEAR SENATOR HART : In our letter of January 23rd, 1970, we submitted for your Subcommittee's hearing record our answers to several questions on automobile insurance, and indicated that we would attempt to answer Question 4 at a later date.

We have made extensive studies of charts 25, 25a, 26 and 29—those relating to rates of return on net worth. We question the methodology used in arrving at the result presented in these charts. The figures appear to overstate the rate of return by a large amount, but we have been unable to pinpoint how they were obtained because :

1. No information has been provided on the methods used to estimate "equity in the unearned premium reserves," the formulas used to average the 10-year results, and other key elements used in computing the rate of return.

2. None of the raw data is given, nor have we been provided with any of the calculations used to massage them into their present condition.

Even from the meager evidence available, it is obvious that the concept of “rate of return" has been misapplied. A ratio of "return" to “mean net worth" may have meaning when considering the question of the profitability of a stock insurance company, but has little or no meaning with respect to a mutual company. By mixing stock and mutual data, the authors of these charts have produced a mishmash without meaning.

We consider these charts, and the issue of "rate of return", to be an extremely important part of the subject matter dealt with in the numerous charts introduced into the record. We therefore urge you to make available the complete data underlying charts 25, 25a, 26a, and 29, so the errors which have been presented as fact can be corrected. Sincerely,

ANDRE MAISONPIERRE, Vice President.

STATEMENT OF NATIONAL ASSOCIATION OF INDEPENDENT

INSURERS

NATIONAL ASSOCIATION OF INDEPENDENT INSURERS,

Chicago, Ill., January 5, 1970. Senator PHILIP HART, Chairman, Subcommittee on Antitrust and Monopoly, Committee on the

Judiciary, U.S. Senate, Washington, D.C. DEAR SENATOR HART: We enclose 14 copies of the Statement of the National Association of Independent Insurers as requested in your letter of October 23. As we indicated previously, we were disappointed that we were unable to express our views orally before your Subcommittee and would hope that if the issues discussed in our statement are scheduled for public hearing again, we would have the opportunity to appear and discuss these issues and respond to any questions the Subcommittee might have concerning our views. Sincerely yours,

VESTAL LEMMON, President.

STATEMENT OF VESTAL LEMMON, PRESIDENT, NATIONAL ASSOCIATION OF

INDEPENDENT INSURERS Our Association recently appeared before this Subcommittee in connection with its study of the automotive repair problem, and we are happy to have an opportunity to present our views on the subjects you now have under consideration. Your letter of October 23 asked us to comment on two questions:

"In addition to any general comments in this area, we would appreciate the views of the NAII as to what changes. if any, are necessary in the present system to effectuate the complete availability of automobile insurance at a reasonable price, and what is the most just and efficient compensation system for all automobile accident victims."

Let us take these up separately.

I. What Changes, If any, Are Necessary In The Present System To Effectuate The

Complete Availability Of Automobile Insurance At A Reasonable Price!

In responding to this question, let me say at the outset that we have assumed that the singular noun in the phrase "at a reasonable price" should not be interpreted literally, that is, we assume it was not intended to carry any suggestion of a system of uniform rates. Were there any such intention underlying it, we would certainly want to be so advised and afforded an opportunity to address that issue fully, because of its crucial importance to the owners of approximately 50,000,000 vehicles in this country insured by our companies at competitive rates.

Assuming that no such meaning was intended, the first question can be broken down into three parts and stated as follows:

(a) Is there "complete" availability of auto insurance? (b) Are prices "reasonable"?

(C) If not, what changes are necessary in the present system to effectuate complete availability at lower prices?

In summary, our answers to these questions are:

(a) Availability of auto insurance today is virtually complete ; under generally prevailing conditions at least 97% of those seeking such insurance obtain it in the voluntary market from a company of their choice, and the remainder can with few (and rapidly disappearing) exceptions obtain it under Automobile Insurance Plans.

(b) Prices for automobile insurance are reasonable in relation to the cost of providing that insurance.

(c) The soundest way in which prices for auto insurance could be lowered would be by reduction of the cost of the benefits and other exposures provided by that insurance.

On the subject of availability, NAII can take some pride in the fact that, in spite of adverse loss trends, the supply of auto insurance our companies have been providing in the voluntary market has continued year after year to outstrip, by far, the growth in demand for such insurance as reflected in the increase in number of registered vehicles. The numbers of cars insured by our companies has, in fact, gone up at twice the rate of that increase. Moreover, in so doing, our companies have provided the leading source of price competition which has been saving the motoring public at least half a billion dollars a year. The willingness of our companies to fullfill their responsibilities in the voluntary marketplace in ever-increasing measure has been a major reason why so relatively few motorists find it necessary to turn to Automobile Insurance Plans (formerly called "assigned risk plans") for insurance."

The very fact, however, that Automobile Insurance Plans exist at all is sometimes seized upon by the critics as a pretext for accusing our industry of somehow falling down on its obligations to the public. This is indeed a strange twist: the commitment of our industry to the public underlying these insurance placement plans is unparalleled in any walk of business, and yet, by openly identifying a need and systematically filling it we have highlighted the fact that some motorists are unable to obtain insurance in the voluntary market.

In no other walk of private competitive enterprise is any company or entrepreneur legally obligated to accept business beyond its individual financial or productive capacity, or to accept business which it knows will be unprofitable. That the same rule should apply to our business seems elementary. Yet, from the furor that is sometimes raised when an insurance company declines an applicant in the voluntary market, one would think a heinous offense had been committed.

We fully recognize and support the proposition that each company should exercise the function of customer acceptance in a fair and nondiscriminatory manner. Two years ago our membership officially endorsed this principle in adopting our Statement of Policy governing underwriting. They voluntarily pledged that race, creed, color, occupation (if lawful), age, previous rejection or cancellation by another insurer, and similar factors would not be used

1 As of 1967 (the latest year compiled figures are available) the ratio of vehicles in the Automobile Insurance Plans to total registered vehicles, by states, were as follows: 25 States-------

Less than 1 percent (between 0.1 and 0.9 percent). 5 States-------

1 to 2 percent. 8 States.

2.1 to 3 percent. 3 States.

3.1 to 4 percent. 4 States.-

4.1 to 6 percent. 3 States.

Over 6 percent. Countrywide average---

3 percent. Figures are unavailable for two States.

arbitrarily and capriciously as a basis for declination of an applicant or cancellation of a policyholder. The fact that our companies are continuing to expand their voluntary writings much faster than new drivers enter the traffic stream bears witness to the fact that the precepts of our Statement of Policy are being observed and practiced. In addition, since the advent of this Statement, complaints by the public have become a rarity as far as our membership is concerned.

Our Association has also continued to support reasonable statutory restrictions on cancellation in states where legislators and state insurance commissioners have felt there is a cancellation problem (presently 35 states have such laws). In addition, individual companies affiliated with our Association, have continued to pioneer voluntary restrictions on policy cancellations which go beyond any existing statutory requirements.

Nevertheless, there will always continue to be instances where motorists for some reason are unable to purchase insurance from a company of their choice. Where rates in the voluntary market are adequate, the incidence of these dislocations is very small. But where they do occur, our industry collectively has agreed to guarantee a ready supply of insurance. And it has done so at what in the aggregate are really bargain rates. Countrywide, during the five-year period 1963 to 1967, the combined losses and expenses of all insurance companies on Auto Insurance Plan business exceeded premiums to the tune of almost $300,000,000!

What does this mean as far as a reasonable price is concerned for the safedriving average American motorist? It means that he is carrying too large a proportion of the insurance costs of the careless, the reckless, and the accident prone drivers. For example, a serious situation has existed in New York State, where the general motoring public has paid, on the average, an additional $8.75 per car to subsidize the assigned risks. Conversely, each assigned risk pays $76.27 less per car than he would if there were no subsidy.

Although all the Automobile Insurance Plans formerly contained eligibility requirements which disqualified a small percentage of drivers, the Plans in 22 states have now eliminated those requirements and the industry recently has voluntarily come forward with a commitment to eliminate them elsewhere, given adequate rates and reasonable state enforcement of driver licensing and safety laws. At the same time, more and more plans are being supplemented by the industry to provide optional higher limits of liability coverage as well as medical payments, comprehensive and collision coverage to those desiring it.

Instead of being constantly critized, our industry deserves a little credit for guaranteeing a supply of insurance to every licensed motorist-not just bare bones coverage either, but supplemental coverage and limits as well.

By way of comparison there is no indication that the money-lending industry has set up any sort of "assigned borrower plan" where a poor credit risk who has been turned down by bank after bank can go and be assured of a $10,000 to $20,000 loan at subsidized interest rates. Nor has the apartment-owning industry jointly set up any "assigned tenant plan" where a family repeatedly evicted for immorality, destruction of property, or nonpayment of rent can go and be guaranteed adequate living accomodations at subsidized rentals.

To bring the picture one step closer, the life insurance industry has not set up any facility where a persons with terminal cancer can get life insurance at standard rates for his age level.

This is not a suggestion that "assigned risk” plans be set up in these or any other industries. What we are saying is that while the auto insurance business may not have achieved 100% theoretical perfection in providing “complete availability" of its product, we are a long ways ahead of any other industry one might point to as a standard of comparison.

But what about our prices?

The cost of living being what it is, we probably could not find very many, if any, major commodities or services to day whose prices the consuming public would characterize as "reasonable". Everything seems "too expensive", and this is certainly true of the automobile and all that is connected with its operation and maintenance. Basic costs which auto insurers pay to injured claimants have increased substantially. Hospital daily service charges, for example, have increased 148.2% since 1959, physicians fees have increased 52.8% since then and total medical care costs are up 51%. The effect of these dramatic increases is reflected in the surprisingly rapid increase in Medicare premium costs. In 1966, when Medicare began, the cost per month was $3.00. This increased to $4.00 in 1968 and will be $5.30 beginning this year. This represents a 77% increase since 1966, or an average of almost a 26% increase per year. In addition also beginning this year a Medicare patient will have to pay the first $52.00 of medical costs instead of $44.00 that was required previously. This is an increase of 18%. These increases in Medicare costs, of course, are especially interesting when compared with auto insurance premium "increases” as outlined below.

2 Those ineligible were persons engaged in an illegal enterprise, persons convicted of a felony during the previous 3 years, or persons with certain types of traffic conviction records evidencing a serious or habitual disregard for law. Only about .001% (one out of

e Plans were being declined by reasons of these requirements, as of 1968.

Some people have sought to create the impression that auto insurance rates have skyrocketed in recent years. Let us look at what has really happened to the aggregate average collected rate per car year of private passenger exposure for all our companies * between 1959 and 1967, the latest year for which compiled data are available.

For auto bodily injury liability coverage that average rate went from $31.53 to $42.55, an increase of only 35%, or about 3.9% per year.

For auto property damage coverage the average rate went from $16.40 to $22.57, an increase of only 3742% or less than 4.2% per year.

For $50 deductible collision coverage, the average rate went from $41.55 to $43.42, an increase of only 4.5%, or about .005% per year.

For $100 deductible collision coverage, the average rate went from $30.86 to $39.74, an increase of only 28.9%, or about 3.2% per year.

It should be pointed out as a cautionary note that these trend figures do not show the increase in the average rate for a given, level amount of coverage such as a $10,000/$20,000 bodily injury liability policy or a collision policy on a $2,500 car. They cannot therefore fairly be compared with general "cost of living" trend figures. Instead, they show the increase in the average rates paid by all policyholders for whatever amounts of coverage they purchased on their automobiles in 1959 and 1967—and those amounts of coverage changed considerably.

Between 1959 and 1967, there was a substantial increase in the liability limits (BI and PD) carried by the average motorist. Likewise, the average value of the cars insured under collision coverage increased substantially. Therefore, the increase in the rates paid by that average motorist in 1959 and in 1967 for a given levcl amount of covcrage would be substantially smaller than the trend figures shown above for each type of coverage."

Viewing automobile insurance rates from the wage earner's standpoint, the percentage of the median family income in the United States expended for basic limits automobile liability insurance has not been going up. It actually went down 21% (from 1.33% to 1.05%) in the period 1947 to 1968. S

These somewhat reassuring trend figures for average rates may of course, be of little solace to the motorist who because of such factors as territory, car usage and driving record falls within a high rating classification and is paying a premium which to him looks big. This is the person who is most frequently heard to complain. And, his complaints sometimes lead public officials and others to ask whether it wouldn't eliminate a lot of consumer unhappiness if rates for all classes and categories of motorists were simply leveled, to produce a single, average rate for everyone.

Another witness before your Subcommittee has already pointed out that if

3 United States Department of Labor Bureau of Labor Statistics Consumer Price Index

4 These trends covering our companies' half of the market should be fairly representative of average rate trends for the other half of the market.

5 NANI is not a rating bureau. Therefore, we do not collect policy limits data. However, sample surveys by a few of our larger insurers indicate that at the present time well over half of their policyholders purchase coverage limits higher than basic limits (5/10/5 or 10/20/5), whereas in 1959 only an estimated 15% to 20% of those companies' policyholders purchased excess limits protection.

A Chevrolet Bel Air, 4 Door Sedan, 8 cylinder sold for $2,558.00 in 1959. A 1970 model of the same car retails for $3,200.00 at the present time. This is an increase of 25%.

7 Normal data collected by the insurance industry does not reflect the increase in limits and in car values, as shown in footnotes 4 and 5. Nor do they reflect "product improvement". Since 1959 the following changes have taken place which increased the value and/or decreased the effective price of our product:

Changed the farmer discount.
Compact car discount given.
Changed multi car rule.
Changed increase limit factor (lowered).

Safe Driver Insurance Plans provided. 8 Journal of Insurance, March 1969, p. 27. » Statement of Lumbermens Mutual Casualty Company, filed November 24, 1969.

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