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As a result of this survey, two senior-citizen groups determined to help develop a new auto insurance program which would overcome the problem. After much planning, the American Maturity Insurance Company of Philadelphia introduced Driverplan 55 Plus, especially for older drivers, guaranteed renewable up to age 80 and is non-cancellable.

Young or old, every individual deserves to be considered on the basis of his own capabilities. The insurance industry is doing well by formulating provisions which should halt prejudice based on age.

[From the Union City (N.J.) Hudson Dispatch, Feb. 12, 1968]

OLDER MOTORISTS HAIL INSURERS WASHINGTON, D.C.—The million-member Assn. of Retired Persons (AARP) commends the recent action of the National Assn. of Independent Insurers in pledging to stop cancellations of automobile policies solely due to the insured's age.

George W. Schluderberg, president of this nationwide group of older Americans, said, “Our association has long been aware of this problem of age discrimination against older drivers. We feel proud that our many months of protests and positive actions against this unfair practice has played a role in getting the insurance industry to formulate provisions which should halt prejudice based on age."

Schluderberg stated that AARP and its parent organization, the National Retired Teachers Assn. (NRTA), conducted an intensive survey among their members to discover what problems and unfair treatment by insurance companies, if any, the older driver faced. The results of the survey proved conclusively that there was serious discrimination, even for those who have had an unblemished record.

JANUARY 19, 1970. Mr. VESTAL LEMMON, President, National Association of Independent Insurers, Chicago, Ill.

DEAR MR. LEMMON: Thank you for submitting your prepared statement and attachments for the hearing record. In view of the fact that the subcommittee was unable to ask you questions, we would be grateful if you would furnish the following information for the hearing record.

1. What portion (in dollars) of the total countrywide premiums for (a) auto bodily injury liability, (b) auto property damage liability and (c) auto physical damage coverage were written by the member companies of your Association in 1968?

2. At the present time, do any of your larger member companies' auto insurance applications contain language to the effect :

"Has any driver in the household been cancelled, not renewed or rejected by any other company within the last three years?"

If so, please indicate which companies.

3. We would appreciate your reviewing the enclosed tables 13–24. Does the information contained in these tables, showing share of the auto insurance market by state, indicate to you a high degree of concentration in the auto insurance business?

4. Would you please review tables 25, 25a, 26a and 29. Does the information contained in these tables accurately reflect a true rate of return on a net worth (policyholders' surplus) basis? We would welcome any comments you care to make.

(You will note in tables 25a, 26a and 29 that no adjustments were made to statutory underwriting or to policyholders' surplus to reflect any equity in the unearned premium reserves; in table 25 such adjustments were made.)

5. Insurance industry witnesses have testified that "over the last 10 years the auto insurance industry in the aggregate has suffered underwriting losses of more than $1.7 billion on automobile liability coverage."

Do you substantially agree with this statement? If you do, for each of the last 10 years (1959-1968), please furnish us with the underwriting results adjusted to reflect the industry's equity in the unearned premium reserves. Please show your computations.

6. It is our understanding from recent testimony that private passenger auto insurance rates are made basically by relating loss costs per exposure (car year). Some 65% to 75% of the private passenger auto insurance premium dollar is earmarked for claim and adjustment costs (permissible loss ratio). These claim and adjustment costs differ as to rural and urban areas, from city to city and sometimes within a city. Furthermore, we understand that medical, repair costs, wages and other items underlying claim payments are not under the control of individual insurance companies.

Would you please explain how "open competition” among individual insurance companies in any given state would reduce (a) claim and (b) adjustment costs, or would bring benefits more in line with premiums? (Please see tables 1, 3 and 4 enclosed.)

Since your Association favors the substitution of "open competition" no filing rating laws for prior approval laws, what is it proposing, if anything, to protect the consumer from anti-competitive conduct in the insurance marketplace?

7. (a) Do you believe that Federal antitrust is a necessary concomitant to competition ?

(b) Doesn't "open competition" on the state level place the burden of proving whether or not auto insurance rates are excessive on an unknowledgeable public?

8. Does auto insurance pricing tend to reflect variations in policy forms used, and underwriting and claims practices among (a) related and (b) unrelated companies?

9. Does auto insurance ratemaking in concert, and the pattern of deviating from those rates by independent companies, and larger bureau companies, result in the smaller companies (see tables 13, 14 and 15) actually being the price leaders in terms of the published or indicated rates?

10. We are enclosing a copy of Mr. Bernard L. Webb's report to this subcommittee on Collective Merchandising of Automobile Insurance. It was made a part of the subcommittee's auto insurance hearing record on December 8, 1969.

We are interested particularly in receiving your comments as to the material contained in pages 50 through 56.

Mr. Webb deduces from his computations that three of your member companies, Allstate, Nationwide and State Farm can only justify an auto bodily injury insurance rate reduction of 2.1%, 6.2% and 12.4% respectively, less than the Insurance Rating Board's gross rate based on savings in the expense factor.

Would you comment on these computations on pages 52–84? If you agree that they are approximately correct, and if Allstate, Nationwide and State Farm's present auto bodily injury insurance rates (either countrywide or on a state by state basis) exceed the 2.1%, 6.2% and 12.4% reduction from IRB's gross rates, would you please explain how these companies can justify these present rates?

11. If you believe insurance companies should have an opportunity for reasonable profit, what do you consider to be reasonable profit for an insurance company providing auto insurance?

(a) What standards would you use to determine reasonable profit?

(b) Would you consider the total earnings from all operations of an insurance enterprise in determining reasonable profit?

12. Would you please indicate which of your member companies are providing group or group rated auto insurance programs, and would you furnish a brief description of each program?

13. Testimony during our hearings revealed that some 36 states have laws and regulations prohibiting or restricting group property and liability insurance.

(a) Should these laws and regulations be repealed in order to allow group programs to compete with individually sold policies?

(b) If you feel these laws and regulations should be repealed, could this be achieved realistically on a state by state basis?

14. Is there any direct interaction and interrelation among auto insurance rate levels, company surpluses, reinsurance availability and rates?

If so, do you believe that such interaction and interrelation has any affect on "capacity"?

15. Would you please explain why auto insurance based on a tort liability system should be the primary source of indemnity for auto accident injuries?

16. Do you consider the auto liability insurance premium to be in the nature of a tax on motoring?

17. Would you favor the elimination of state financial responsibility and compulsory insurance laws if a universal compulsory insurance law was adopted ? 18. What effort, if any, is your Association making to have the insurance industry and the states provide higher policy limits under financial responsibility and compulsory insurance laws?

19. Would you please explain your Associations' position in New York during 1965–66 with respect to the insurance department's recommendation to the legislature that New York increase the limits of liability under its compulsory auto liability insurance law?

20. Do any of your member companies' auto physical damage forms provide for appraisal in the event of disagreement as to the amount of recovery for a physical damage loss? If so, please indicate which companies.

21. Do any of your member companies' auto insurance policies contain (a) a family exclusion clause for certain members of a family residing with the insured, (b) a medical payments setoff provision and (c) a subrogation clause for medical payments? If so, please indicate which companies.

22. Should the insurance industry eliminate provisions rendering medical payments coverage subrogable, and/or excess to other recovery, in those jurisdictions permitting subrogation with respect to that coverage?

23. It is our understanding that under many medical payments provisions, medical expenses must be incurred within one year of the accident.

Does this particular condition result in the accident victim not being fully compensated?

24. Do any of your larger member companies provide that the medical payments provision shall constitute excess insurance over any other available insurance or health benefits, including Blue Cross-Blue Shield or government programs? If so, please indicate which companies.

25. Do you believe that there should be a return of medical payments premium to the individual insured whose medical payments benefits are reduced or eliminated by reason of other benefits, such as are provided by the Veterans'

26. Do you believe that if auto accident prevention was considered apart from the auto reparation process, society would concentrate its efforts and resources more efficiently and effectively on each of these issues?

27. According to Professor Robert Keeton of Harvard Law School, the following portions of each premium dollar collected for private passenger auto bodily injury liability insurance is paid net to accident victims :

(a) 14.5¢ for out-of-pocket losses not already compensated from other sources (b) 8¢ for losses also compensated from other sources, and (c) 21.5¢ paid in excess of actual loss (in theory for general damages such as

We would welcome any comments you would care to make. (The enclosed hearing record at pp. 38-42 contains his complete analysis.)

Has your Association made any studies, or does it have any information, which would indicate whether or not policyholders are aware of a Keeton-type analysis showing (a) disparity between auto bodily injury insurance benefits and costs, (b) overlapping of these benefits and (c) payments in excess of actual loss?

What would your Association recommend to correct these deficiencies in the present system?

28. Do you have any studies or information showing that the consumer is aware auto liability insurance is something he is expected or compelled to buy for the benefit of the other party who may become involved in an accident with him?

29. Do you believe that any portion of the financial cost of auto accidents should be shifted from injured parties to auto designers and manufacturers or the public-at-large?

30. Do you think that guest statutes and inter-spousel and intra-familial immunities should be eliminated?

31. Do you believe that a person injured in an auto accident should be afforded

32. You say in effect on pages 35 and 37 that you basically support the Cotter Plan, which among other things, calls for regulation of contingent fees.

If contingent fees are to be regulated, do you believe that there should be a dollar limit on defense costs in order to better balance the position of plaintiffs and defendants ?

33. Since you advocate retention of the fault system to compensate auto accident victims, do you likewise favor compulsory liability issurance with the determination of the insurance companies' contractual obligation upon the occurrence of the accident so as not to deprive the victim of compensation by reason of policy defenses?

Do you believe that auto liability insurance policies should be similar in nature to certified policies under present financial responsibility laws whch prohibt the assertion of policy defenses upon the occurrence of an accident?

34. In the event that medicare is extended to cover the entire population, or a universal health insurance plan is adopted, should such programs absorb the medical care aspects of auto liability insurance?

What should be the role of private insurance carriers and government in carry. ing out any such proposed programs?

35. Would you consider it necessary to retain fault in order to recover for general damages, such as pain and suffering, if insurance companies were completely free to innovate coverages for such damages?

36. In the September 1967 issue of “For the Defense", published by DRI (which you furnished for the hearing record) Philadelphia is one of the cities noted where there is serious court delay. Yet, as you indicate on page 21, Pennsylvania has a system of mandatory arbitration of small cases.

In light of these facts, would a system of mandatory arbitration realistically help solve the court congestion problem?

37. If, as you mention on page 19, 89% of "all auto bodily injury claims arising out of a typical recent accident year” are disposed of within one year from the date of accident, does this indicate that our member companies ought to be able to obtain claims data within that period ?

38. Do your member companies use a loss development factor in making auto bodily injury liability insurance rates?

39. The statement has been made : 1 "If one regards the stock insurance company as a combination of a closed-end-investment trust, and an underwriting operation which provides capital funds for investment, then the cost of capital to the investment trust is the underwriting loss from insurance operations. Thus, if expenses and losses are covered by premiums, the investment department has the use of increased average premiums at no cost. This means, in effect, that a company can have a healthy growth rate if its dividends to stockholders, which have come from investment income alone, characteristically, are less than the net investment earnings minus underwriting losses. In the case of a mutual, surplus growth is derived along similar principles if policyholders receive dividends in amounts less than total investment gains a typical practice.

Please consent on this statement.

40. On page 22 you say that “the primary source of the figures set forth (in Table 3 enclosed) appears to be data developed in the Michigan survey conducted early in the 1960's under the supervision of Professor Alfred Conard and originally reported in "Automobile Accident Costs and Payments—Studies in the Economics of Injury Reparations".

Are you aware that Professor Conard presented the data in question without the “cautionary consent" you say on page 23 that was in his 1964 study is a paper that was published in "Crisis in Car Insurance", University of Illinois Press 1968 at page 80, which was the subcommittee's source for the data in Table 3?

41. You say on pages 24 and 25 that “the automobile insurance business over the past 10 years has been delivering in the aggregate roughly 75¢ in 'benefits' for each dollar of liability insurance premiums".

(a) Assuming, as you a pepar to do, that the allocated and unallocated adjustment expenses represents a “benefit” “on behalf of such third party" (p. 24), would it be more appropriate to provide such benefit through a more disinterested agency or to provide some countervailing force to equalize the position of the parties?

in auto liability insurance benefits are returned out of each premium dollar. His analysis is contained in the enclosed hearing record (see question 27 herein) at pp. 40-42.

42. It is our understanding that workmen's compensation insurance is characterized by uniform coverage forms, rating plans and classifications in many states, including California, where, with respect to other casualty coverages, rates are established only through competition.

Do you consider present methods for the establishment of workmen's compen1 "Book Review", Irving Pfeffer, 10 UCLA Law Review 690 at 699 (1962–63).

sation rates appropriate, and if so, would you consider appropriate, or inappropriate, similar methods for making rates for auto liability insurance.

43. Testimony during our hearings shows that many of those who are forced to resort to auto insurance plans or assigned risk plans complain of their inability to obtain limits of liability greater than basic limits, medical payments corerage, physical damage insurance and adequate premium financing.

Does your Association favor requiring insurers to offer higher limits, additional coverages and premium financing incident to auto insurance plans or assigned risk plans?

44. In those states where your Association considers enforcement of driver licensing and safety laws to be inadequate, would it recommend the withdrawal of safe driver insurance plans or similar merit-demerit rating plans because convictions or want of convictions with respect to traffic violations may not properly reflect the probable contributions of the insureds to the loss experience?

45. Professor Calvin Brainard, at page 640 of his book, Automoblie Insurance mentions the tendency of merit-demerit rating plans to tempt insureds "to absorb small losses themselves rather than incur a penalty increase in rate".

If you believe such a tendency exists, would it, to that extent, invalidate the rating plan by failing to exact from such insureds premiums commensurate with their probable prospective contribution to the loss experience?

46. On page 15 of your statement you say that "by far most American citizens are now covered either by one or several governmental or private insurance plans or policies for at least their basic medical expenses (and in most cases, basic wage losses) arising out of sickness or accident of any kind. The proportion of the population reached by these coverages has been steadily increasing each year.”

(a) Do you believe that the basic premise for financial responsibility or compulsory insurance laws arises out of concern that the innocent victim of an automobile accident may become a charge of, and burden upon, society?

(b) If so, do you feel that the increase of voluntary, first party coverage, weakens this premise for financial responsibility or compulsory liability insurance, and therefore, the individual should be free to purchase or not to purchase liability insurance as he pleases?

47. On page 10 you cite Lumbermens Mutual Casualty Company's testimony before this subcommittee wherein it was stated that if the auto liability rates now paid by Lumbermen's California policyholders, which range from $45 to $399, were averaged, they would produce a rate of $77.50 for everyone. On page 11 you say such a result, among other things, would be "grossly inequitable".

(a) Assuming that rates for individual, private passenger automobiles are necessarily prospective, rather than retrospective, does your Association consider any inequity to exist where a driver whose loss potential was assumed to be such as to call for a $45 rate, proved, in fact, to have a loss potential for in excess of the indicated rate, as manifested by a serious accident, the results of which were paid for, in part, by a driver whose loss potential was assumed to be such as to call for a rate of $399, but who, in fact, proved to have a loss potential far below that?

(b) Would your Association consider such an average rate modified by a uniform safe driver plan under which the insured received discounts for accident and grossly inequitable and politically unrealistic," as you say on page 11?

Since you consider an average premium which would be sufficient in the aggregate, to fund the losses of innocent accident victims as "grossly inequitable and politically unrealistic," do you likewise consider the premium for the uninsured motorist coverage, which is an average premium sufficient, in the aggregate, to fund the losses of the innocent victims of uninsured motorists?

48. Assume an accident caused by the equal fault of both drivers involved but with respect to which, because of serious injury to the spouse and the nonimputability of the driver's neligence, the other driver's insurer effected settlement of the husband's claim to avoid reference of the wife's claim to a plaintiff's lawyer.

(a) Would your Association regard such action on the part of the insurer as improper and defeating the spirit and purposes of the reparation system based upon fault?

(b) Assume that the husband's property damage liability claim was settled through payment to avoid reference to a plaintiff's lawyer with respect to the spouse's serious injury claim.

Would your Association regard it as proper to charge the property damage liability loss experience with the property damage liability loss payment?

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