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2. You say on page 8 that "the statutory and regulatory bars to group automobile insurance should be removed.” It is our understanding that some 36 states have such restrictive laws and regulations

Do you believe realistically that this can be achieved on a state by state basis, when so many in the insurance business, including agent associations, are opposed to group auto and fire insurance?

3. It is our understanding that your company is not a member of the Insurance Rating Board for private passenger auto insurance. Is your company a subscriber to the IRB for private passenger auto insurance in any state? If so, please indicate which states.

4. Regardless of whether or not your company is a subscriber to the IRB, does it charge less than the IRB's indicated private passenger auto insurance rates in the following states:

(a) California ("suggested" indicated rate)
(b) New York
(c) Illinois
(d) Missouri

(e) Ohio If you company charges less than the IRB's indicated auto insurance rates in California. Missouri and Ohio, how does it determine the rates to be charged the public in these states?

5. 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 bureau rates?

6. It is our understanding from recent testimony that private passenger auto insurance rates are made basically by relating loss cost per exposure (car year). Some 65% 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 and from city to city. Furthermore, we understand that medical, repair costs, wages and other items underlying claim payments are not under the control of individual insurance companies.

7. Under your recommendations for the substitution of California type "open competition" laws for prior approval laws, how is the consumer to be protected from anticompetitive conduct in the insurance marketplace?

Do you believe that Federal antitrust is a necessary concomitant to competition?

Doesn't "open competition" on the state level place the burden on proving whether or not auto insurance rates are excessive on an unknowledgeable public? 8. If INA insures fleets of commercial cars and trucks

(a) How much money do you spend in your safety program per car in the fleet?

(b) How much does your company spend per private passenger nonfleet car?

(c) Do you have any studies indicating the results of INA's efforts in the safety area for fleets?

(a) When you rate a fleet of commercial cars do you accept other cars
in that fleet regardless of who is going to drive that car or truck?
(e) Do you insure fleets of:

(1) newspaper trucks
(2) milk delivery trucks
(3) film delivery trucks

(4) long hauling trucks 9. Would you please review enclosed tables 13 through 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?

10. Would you please review enclosed 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 and 26a that no adjustments were made to statutory underwriting results nor to policyholders' surplus to reflect any equity in the unearned premium reserves; in table 25 such adjustments were made.)

11. Would you please allocate the 1968 annual statement policyholders' surplus for INA as set forth below:

(a) Paid up capital.
(b) Paid in and contributed surplus.
(c) Retained earnings.
(d) Unrealized appreciation on investments.

(1) Excess (or deficiency) of book value of securities of affiliated corporations over cost.

(2) Excess (or deficiency) of market value of securities of non

affiliated corporations over cost. 12. It is our understanding that a few months ago INA made a $175 million dividend payment of cash and securities to its holding company (INA Corporation). What was the purpose of and reason for this dividend payment?

What effect, if any, does this dividend payment have on INA's ability to write an expanding insurance market ?

13. If the INA auto compensation proposal were adopted, how would overall costs be reduced or benefits brought more in line with premiums?

Would the INA proposal be more expensive than a complete no-fault system?

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

Would the INA auto compensation proposal, if adopted, tend to eliminate (a) overlapping of benefits and (b) payments in excess of actual loss?

15. Who do you believe should bear the costs of motor vehicle accidents?

16. There are those who say that one of the reasons the present fault system should be retained as the method for distributing the costs of auto accidents is that it deters accidents. Others say that since the risk of driving is transferred to an insurance fund, the fault system as a means for holding motorists individually responsible for their negligent driving is not too meaningful.

If the accident prevention issue was considered apart from the compensation issue, could society concentrate its efforts and resources more efficiently and effectively on each of these issues?

17. What effect, if any, would the INA auto insurance proposal have on state civil court dockets?

18. If the INA proposal was adopted on the Federal level, what effect, if any, would it have on:

(a) State court dockets?

(b) Federal court dockets? We are grateful for your cooperation and would appreciate receiving the requested information by January 10, 1970, as we are anxious to close the hearing record. Sincerely,

PHILIP A. HART, Chairman, Antitrust and Monopoly Subcommittee.

INSURANCE CO. OF NORTH AMERICA,

Philadelphia, Pa., January 9, 1970. Hon. PHILIP A. HART, Chairman, Antitrust and Monopoly Subcommittee, U.S. Senate Committee on the Judiciary, Washington, D.O.

DEAR SENATOR HART: The attached statements and exhibits are offered as a supplement to my previous statement, and in response to the questions posed in your letter of December 17.

I have taken the liberty of submitting these responses in a somewhat unpolished form, and in triplicate only, in order to meet the January 10 date which you requested. Twenty-five additional copies will be prepared and should be in your hands by January 13.

I would like to thank you again for the opportunity to present my views to your subcommittee. Sincerely,

CHARLES K. Cox, President.

QUESTION No. 1

No. Risk classifications would still be necessary under the INA auto compensation proposal, and these classifications would constitute groupings of risks with comparable probability of loss. Of course, the risk which is being pooled would differ from the risk insured by the present automobile liability policy, and the classifications would differ accordingly.

The INA proposal represents a combination of liability insurance and accident insurance. As I stated previously, the classification systems for combinations of coverage are usually broader than the classification systems developed for any one peril or coverage.

While different underwriters might elect different classification systems, we would expect the classification for this combination of coverages to resemble a composite of the present accident insurance classifications and the present automobile liability classifications.

The INA proposal contemplates elective deductibles, waiting periods, sublimits, etc., and the election of these various options constitute a form of self-classification. The model statute also permits combination of the required automobile coverages with other forms of insurance. For example, a single policy could be devised to incorporate all of the coverages presently found in the automobile policy, the homeowners policy, and a broad accident policy. The classification system for such a combination of coverages would differ from the classification system for automobile coverages only.

The INA proposal would also lend itself to true group rating, which usually employs a generalized classification system.

QUESTION No. 2 “Group" insurance is a term which is frequently used to describe both:

(a) Mass Merchandising and

(b) True Group Insurance as contemplated in Life and Accident and Sickness laws. Mass merchandising is merely a marketing technique under which policies are issued to a large number of people (employees of a common employer, for example) and the expense savings passed on to each insured in the form of a lower premium. This is not group insurance since each risk is individually underwritten, separate policies issued to each applicant accepted and a choice of coverages permitted within the scope of the plan. Many states already recognize mass merchandising as a valid marketing device which does not conflict with statutory or regulatory requirements. In addition, several states, such as Connecticut, Minnesota and Wisconsin have enacted specific laws authorizing group insurance in the property and casualty field. Indeed, a steadily growing number of agents and agencies are now supporting and actively soliciting business under the mass merchandising and group insurance concepts. For these reasons, we believe that either mass merchandising or group insurance will become available in practically all states. I am advised that a similar result could be achieved by judicial action if an appropriate group were to test the fictitious group laws and regulations. A third possibility would be the enactment of federal legislation prohibiting such state legislation or regulation as an impediment on interstate commerce.

QUESTION No. 3 INA is not a member of the Insurance Rating Board for Private Passenger Automobile insurance.

INA is a subscriber to the Insurance Ratir.g Board for Private Passenger Automobile insurance in New York and Puerto Rico.

Allied Insurance Company, a subsidiary of INA, is admitted in 34 states and is a member of the Insurance Rating Board for Private Passenger Automobile insurance in each of these states.

QUESTION No. 4 (a) California :

(1) INA's Family Automobile Rates are not less than the IRB's standard family automobile rates.

(2) INA's Champion Automobile Policy (preferred risk policy) rates are less than the IRB's Special Automobile Policy rates.

(b) New York:

(1) INA's Family Automobile rates are not less than the IRB's standard family automobile rates.

(2) Allied Insurance Company's Champion Automobile Policy (preferred risk policy) rates are less than the IRB's Standard Family Automobile rates. (c) Illinois :

(1) INA's Family Automobile Rates are less than IRB's standard family automobile rates.

(2) INA's Champion Automobile Policy (preferred risk policy) rates are less than the IRB's Special Automobile Policy rates. (d) Missouri:

(1) INA's Family Automobile rates are not less than the IRB's standard Family Automobile rates. (2) INA's Champion Automobile Policy (preferred risk policy) rates are:

(a) Not less than the IRB's Special Automobile Policy rates for accident and violation free risks.

(b) Less than the IRB's Special Automobile Policy rates for risks

with point charges for accidents. (e) Ohio:

(1) INA's Family Automobile Rates are not less than the IRB's standard Family Automobile rates.

(2) INA's Champion Automobile Policy (preferred risk policy rates are less than the IRB's Special Automobile Policy rates. Rates for the Champion Automobile Policy in California and Ohio are based upon the following considerations :

(1) Expense savings resulting from use of electronic data processing equipment.

(2) Loss experience.

(3) Underwriting judgment. In Missouri, INA's Champion rates for risks with accidents are lower because, as a matter of underwriting judgment, we have elected not to use the Safe Driver Insurance Plan with our Champion Policy.

QUESTION No. 5 No. Bureau filings are not based solely on the experience of their members and subscribers; they include experience of deviating companies, and also of those independent companies who report through the bureau as a designated statistical agent.

The role of the bureau rate as a price leader has diminished in recent years, and is expected to diminish farther in the future. As non-bureau companies assume a greater share of the market, their rates become the standard for competition. As prior approval laws are modified or abandoned, the regulatory practice of using bureau rates as a benchmark for analyzing filings will similarly be modified or abandoned.

The 260 class plan, the safe driver plan, the special automobile policy, uninsured motorist coverage, and many other innovations were first introduced by independents, and later followed by bureaus.

QUESTION No. 6

Open competition laws offer both incentive and ability to introduce innovations and expense reductions, and may be expected to bring about more efficient operations.

Prior approval laws have not only restrained the ability to innovate, they have reduced the incentive. Under this system, the full details of a new program, or a prospective reduction in expenses, is set forth in detail in a public record before the filer is permitted to put them into effect. The file-and-use type law offers some relief in this area ; the no filing law offers the greatest competitive incentive to introduce innovations and cost reductions.

Table 3 indicates efficiencies attributable principally to two factors: (1) a direct compensation or fixed benefits system permits economies in administration and in loss adjustment expense not possible in a tort liability system ; (2) group merchandising, payroll deduction, and economies of scale.

INA advocates extension of both of these factors to the automobile compensation field.

QUESTION No. 7

The California-type rating law, in combination with state antitrust laws, does in my opinion provide ample authority to the regulator for the protection of the public against anti-competitive conduct. This type of law defines excessiveness and inadequacy of rate in terms of competition, and also prohibits unfair discrimination. It is my position that this type of law, effectively administered, and concentrating regulatory attention on actual market practices, affords the public better protection than those laws which concentratè regulatory attention on statistical justification of prospective rates prior to implementation.

I believe that experience under the prior approval laws clearly demonstrates that this form of regulation results in substitution of the judgment of the regulator for the business judgment of company management. In an inflationary period, this practice consistently produces a situation in which the approved rates are generally inadequate. Under these circumstances, underwriters compete vigorously for those risks for whom the approved rate is adequate; they could not reasonably be expected to compete for those risks for whom the approved rate is inadequate.

I believe that federal antitrust laws are a desirable concomitant to open competition-type rating laws. It is my understanding that Public Law 15 exempts insurance from the federal antitrust laws only to the extent that it is regulated by state law. My company is one of the leading underwriters of aviation insurance, which is exempted from state regulation, and we presently operate under the federal antitrust laws. If it were determined that, under a California-type rating law, the class of insurance was in fact not regulated by the state, the federal antitrust laws would apply. I believe insurance companies should be able to operate effectively under these laws provided they could continue to exchange loss data and other information necessary for independent ratemaking.

This situation has the same desirable effect as the open competition concept itself; it concentrates regulatory attention on the actual practices rather than on speculation as to what may occur in the future. It also should preclude the undesirable prospect of dual federal and state regulation in the same area.

Open competition rate regulation at the state level does not place the burden of proving rate excessiveness on an unknowledgeable public. This form of regulation relies primarily upon effective competition to protect the public against rate excessiveness. It contemplates the establishment of an insurance department staffed with competent experts, and headed by an elected or appointed official who is charged with the responsibilty of determining whether effective competition does in fact exist and, when it does not, of determining whether rates are excessive.

As a practical matter, these determinations must be made at a local level. In their administration of the federal antitrust laws, the federal regulatory and enforcement bodies consider anti-competitive circumstances and practices on a local market area basis.

A more substantial question of the relative effectiveness of state or federal regulation is raised when rate regulation is considered in conjunction with regulation for solvency. If different regulatory systems are applied in these two areas, it is entirely conceivable that one regulator might find a rate adequate, or even excessive, while the other regulator might find that continued use of the same rate would impair the solvency of the company. In my earlier testimony, I referred to my recommendations on Senate Bill 2236, in which I proposed that companies be permitted to elect between federal, state, or private insolvency funds. The possible anomaly of different regulatory systems for rate adequacy and solvency might be resolved by providing that those insurers electing to participate in the federal guaranty fund be exempted from state regulation of rates. Such an exemption would, in accordance with Public Law 15, remove those companies from the partial exemption from federal antitrust law.

QUESTION No. 8

a. We do not maintain records in a form which would provide an answer to this specific question. The amount of money spent varies greatly between fleets, and may vary from time to time within a single fleet, depending on requirements of the insured, development of loss problems, and so forth.

b. We do not maintain records in a form which would provide an answer to this specific question. The following will indicate some of the types of activities

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