The various underwriting practices that have been uncovered by the Massachusetts insurance examiners as described in the preceding paragraphs leave the unwary automobile buyers of the Commonwealth of Massachusetts in a position whereby they are paying untold high insurance charges for financing automobiles.

As a result of the department's investigation into rebating, misclassification, and other abuses in the financed automobile physical damage insurance business, Commissioner Humphreys served notice to all insurance companies, brokers, agents, banks, lending agencies, dealers, finance companies, policyholders, and interested members of the public that a public hearing would be held at 100 Nashua Street, Boston, Mass., on Friday, July 13, 1956, for the constructive purpose of tightening up methods and practices used in the Commonwealth of Massachusetts approximating 46 million premium dollars in the automobile physical damage line. The insurance commissioner at this hearing proposed to take evidence and suggestions relative to rules and regulations to be promulgated and which is to be applicable to physical damage insurance under section D, chapter 175A of the general laws, also to adopt and promulgate regulations relative to the subject matter of the physical damage insurance on motor vehicles and to ask whether any or all the regulations dated March 16, 1938, as promulgated by the then commissioner of insurance, relative to physical damage insurance covering motor vehicles by affirming, changing, modifying, amending. This meeting was adjourned and reconvened on Thursday, January 17, 1957, on the question of adoption and promulgating by Commissioner Humphreys all rules and regulations relative to the subject matter of insurance on financed motor vehicles including physical damage, credit life, accident and health, or any other insurance coverage pertaining thereto. Testimony was recorded at these hearings and as a result Commissioner Humphreys is now issuing new rules and regulations to become effective April 22, 1957, covering all concerned in the financing and writing of automobile physical damage coverage and credit life insurance.

Senator Payne?

Senator PAYNE. I have no questions.

Senator MONRONEY. Mr. Busby?

Mr. BUSBY. I would just like to complete the record by submitting without reading the other memorandum which the committee has received.

Senator MONRONEY. Very well.

(The material referred to is as follows:)

MEMORANDUM

To: J. Page Risque, assistant vice president,

Service Fire Insurance Company of New York.

FEBRUARY 29, 1956.

From: Thomas J. Kelleher, Jr., principal insurance examiner,

Massachusetts Insurance Department.

Our understanding at a conference with Commissioner Humphreys on this date, a flyer or insert will be attached to the questionnaire of the Service Fire Insurance Company of New York, which is being forwarded to each Massachusetts policyholder who has been placed in class 2, in force as of June 30, 1955, by said company. This flyer or insertion will read as follows:

"Should you be entitled to a refund on your policy, $1 additional will be included to reimburse you for a notary fee."

Letters which are returned and indicate that the policyholders are entitled to lower rates but which have not been notarized will be turned over to this department if, after being again sent to the policyholder, a properly notarized form is not forthcoming.

[Confidential]

To: Commissioner Joseph A. Humphreys.

From: Thomas J. Kelleher, Jr., principal insurance examiner.

Date: February 20, 1956.

Re: Special investigation in connection with misclassification of automobile physical damage premiums.

As of this date, approximately 2,600 questionnaires have been mailed by this department to various Massachusetts residents who are insured for automobile physical damage coverage and who have been placed in class No. 2 by the Calvert Fire Insurance Co.

Approximately 40 percent of these questionnaires have been returned to this office as of this writing. The returns indicate that 7 out of 10 assureds have been misclassified by the Calvert Fire Insurance Co. These assureds should either be in class Nos. 1 or 3 and at a lower premium rate.

Many individual cases are now being brought to the attention of this department regarding overcharging of insurance by finance companies, and also, the so-called ballooning of notes by automobile dealers in order for customers to finance cars so that the package insurance plan may be sold.

As a result of this department making an examination of the policy files of Massachusetts residents at the eastern department of the Industrial Insurance Co., it has been determined that questionnaires should be forwarded to approximately 1,000 policyholders of this company, as it appears that they have been improperly classified.

It is my intention to assign assistant examiners, George Sowle and James McCarthy to the branch offices of the Emmco Insurance Co., South Bend, Ind., with the IBM statistical run furnished by this company for the purpose of examining each Massachusetts resident's policy file.

Also, Richard Howard, of this department, has informed me that he will be able to take up his assignment at the Service Fire Insurance Co.'s branch office, Atlantic Avenue, Boston, on or about February 23, 1956.

It is my intention to proceed with the examination of 15 other insurance companies as regards the proper classification of Massachusetts residents who are insured for automobile physical damage and who have financed their cars through banks, finance companies, and automobile dealers immediately following the completion of the examination of the above four insurance companies who are subsidiaries of finance companies.

Mr. BUSBY. And I would like to technically get in the record all of the exhibits by the prior witness, Mr. O'Brien, which were not received.

Further, the classifications and refunds and amount of business done by Service Fire Insurance Co., Emmco Insurance Co., Calvert Insurance Co., and Industrial Insurance Co., the companies which the better business bureau, yesterday, alleged to have made widespread misclassifications. There was a fifth company, Marathon Insurance Co., but its writings are quite regional and according to staff study limited perhaps to two States. They did misclassify, but it was so much more limited than these larger companies that we have not as yet figured out the statistics on them.

So I submit, Mr. Chairman, to the record, these statistical rundowns. Senator MONRONEY. This is a staff study, based on the nearest figures we can compile.

Mr. BUSBY. The figures here are based on figures from the companies, themselves.

Senator MONRONEY. I thought it had been cross-checked with the commissioners, but these are from the companies and relate to the refunds as compared to the number of letters sent out and as compared to the total refunds given.