In effect, it consists of the sending of a questionnaire to the policyholders affected, asking them for information to enable us to check the accuracy of the premium charged under the policy. Policyholders found to have been overcharged will receive appropriate refunds. The work required to effectuate this program is of tremendous proportion. Every effort is being made, however, to complete the program in the quickest time possible.

Incidentally, C. I. T. Fnancial Corp., of which Service Fire is a subsidiary, is a member of your bureau. And, of course, as one of the C. I. T. companies, Service Fire's primary objective is excellence in service and policyholder relations. If you should have any further questions we wll be happy to discuss them with you.

Sincerely,

Mr. KENNETH B. WILLSON,

J. P. RISQUE, Assistant Vice President.

PACIFIC FINANCE CORP.,
Los Angeles, Calif., June 7, 1956.

President, National Better Business Bureau, Inc.,
New York, N. Y.

DEAR MR. WILLSON: We are very happy to answer your inquiry about insurance overcharges and refunds.

When we discovered there had been some overcharges due to some incorrect class ratings, resulting from insufficient customer information, we immediately checked all of our insurance ratings and when it developed that an error had been made in classification, a refund was made to the insured immediately. At some extra expense and burden on our part, we have now set up additional procedures at the time of writing a policy to make certain that the customer gives us complete information so that these errors cannot occur again.

DEAR MR. WILSON: This is in reply to your letter of May 24, 1956, in which you make inquiry as to whether our company is investigating the matter of alleged overcharges to any of its policyholders.

Even though there has been considerable publicity concerning alleged overcharges on insurance for financed automobiles, our company has been quite free of that publicity. The reason for this is that our company placed into effect the classification rules as quickly as it was practical to do so after the issuance and as a result we believe our business has been properly classified.

Naturally, we are not saying mistakes have not been made in the classification of risks because we, like all prolific writers of automobile business, may have misclassified some risks but, rest assured that any errors in classification were unintentional and have been or are being correctly classified and proper credit given.

We appreciate this opportunity to tell you of the manner in which we have complied with the respective insurance department's requests to properly classify our incoming business and we appreciate the manner in which you are making inquiry in a friendly and constructive spirit.

DEAR MR. WILLSON: Thank you for your inquiry of May 24 regarding the reclassification of insurance premiums.

This company is in the process of reviewing all class II risks which it has written and in those instances where the producer of the business erroneously

classified it at the inception of the policy, we are returning to the insureds the excess premium which they paid for their insurance.

We have already made disposition of over half of our business and contemplate that the balance of the work will be completed in the next 60 days. We have established routines wherein misclassification of risks cannot take place in the future.

Sincerely yours,

Mr. KENNETH B. WILLSON,

W. L. COBB, Executive Vice President.

CALVERT FIRE INSURANCE CO.,
Baltimore, Md., June 7, 1956.

President, National Better Business Bureau, Inc.,

New York, N. Y.

DEAR MR. WILLSON: There has been a slight delay in replying to your letter of May 24 due to my absence from the office attending the National Association of Insurance Commissioners meeting in St. Louis. We are very glad to reply to your letter and to give you the information you wish.

Our companies took steps many months ago to correct any errors in classification which may have occurred in the past due to failure on the part of those producing the business to supply correct information to our companies. Early in 1955, we undertook to send letters on a test basis to class 2 policyholders where rating information was not submitted. This procedure was continued for some months. Starting in the latter part of September 1955 we submitted letters to all class 2 policyholders whose policies were in force at the time. This was voluntary on our part and we hoped by this to correct any errors in classification. Adjustments were made on the basis of replies. At the same time we inaugurated a procedure of sending out a letter on all the current business requesting rating information. This was done for the purpose of securing information where it was not available and to give the policyholder opportunity to give us directly information which we could check against information previously received from other sources.

Unfortunately, due to the indifference of the policyholder, replies were not received in a sufficient number of cases. As a result, we undertook a second general circularization in 1956 to those policyholders who had not replied to our previous letters as well as those whose policies had been canceled or had expired between July 1, 1955, and the date of our first circularization. This was intended to comply with the resolution of the National Association of Insurance Commissioners passed at the winter meeting in New York. This second circularization was carried on generally on a countrywide basis with the exception of those States where the ratios of class 2 business to total appear to be well in line with acceptable percentages.

In February 1956 we also started the procedure of pending any applications for class 2 insurance on which a satisfactory rating statement was not presented at the time of application. We are of the opinion that every policyholder on business in force as of July 1, 1955, has now been given ample opportunity to supply us with information which would correct any errors that may have occurred in the past. Our present procedure, we believe, reduces the possibility of error in classification to a minimum. Further, we frequently survey this procedure to determine that we are accomplishing the desired results.

With respect to refunds, our companies have always taken the position that we would make a refund whenever information reached us which indicated a previous charge was incorrect.

Many of the steps which we undertook preceded the winter meeting of the National Association of Insurance Commissioners in November, and preceded much of the publicity which has been given this matter.

We sincerely regret that any errors did occur, and we are determined to prevent them in the future. This applies both to Calvert Fire Insurance Co. and Cavalier Insurance Corp. We trust that this gives you the information you desire. However, should you wish anything further, we will be very glad to supply it.

Yours very truly,

H. L. VAN HORN, President.

Not all State insurance officials have agreed that the overcharging was in all cases unintentional. Massachusetts Insurance Commissioner Joseph A. Humphreys, with respect to companies involved in that State, has described the practice as

a combination of slipshod and unconscionable practices perpetrated jointly by a number of automobile dealers, financing institutions, and their affiliated insurance companies.

He has named the companies as Calvert Fire Insurance Co., of Philadelphia, Emmco Insurance Co., of South Bend, Ind., Industrial Insurance Co., of Holland Township, N. J., and Service Fire Insurance Co., of New York, although it subsequently developed that additional companies, which have not been identified, were also involved. More specific details of the findings of the Massachusetts Insurance Department are contained in a report dated July 12, 1956, to the commissioner from Thomas J. Kelleher, Jr., principal insurance examiner, from which I quote excerpts as follows:

Late in September of 1955 while on an out-of-State assignment, this insurance department investigating unit uncovered the practice of misclassifying automobile physical damage premiums by certain so-called specialty insurance companies in the automobile physical damage field. Upon further investigation it was found that four specialty insurance company writers of automobile physical damage insurance were misclassifying Massachusetts residents in the amount of $100,000. Further investigation revealed that many other companies were also guilty of this practice. It is now estimated that over $200,000 will be returned to Massachusetts residents through the efforts of Insurance Commissioner Joseph A. Humphreys.

These misclassifications by the so-called specialty insurance companies are by no means accidental, or can they be attributed to human error. Insurance department examiners, while examining dailies in the home office of these companies noted Hooper-Holmes and retail credit reports attached to the dailies, stating that no drivers under 25 resided or drove the particular cars in question. The dailies themselves would be rated class II and such credit reports were attached to the dailies.

This investigating unit of the Massachusetts Insurance Department also has in its possession at the present time automobile collision insurance charts which have been placed in the hands of various automobile dealers by a national financing company to be used for time-payment plans on new and used cars. These charts are originally calculated from finance charts which include class II collision premiums. In other words, if an automobile time sales buyer actually rates class I, or class III, he is still charged the highest rate, class II. The instructions to the automobile dealer further states that if the customers feel that they are being overcharged, or are eligible for preferential collision rating in class I and class III, the so-called adjustment charts for these classes are to be employed.

In New Jersey, on March 25, 1956, Commissioner of Banking and Insurance Charles R. Howell, announced that his department had launched a broad investigation of overcharges by certain insurance companies. He said his investigation indicated that certain companies, "particularly those affiliated with finance companies," had "habitually" charged the higher rates. Mr. Howell has informed NBBB that

In the early part of this investigation we formed the opinion that the omission of complete classification data was deliberate because in many cases, the underwriting information was retained in the office of the finance company or bank, where the business originated, and was not forwarded to the home office of the company for proper classification by the company underwriters.

The New York Times for January 30, 1957 quotes Commissioner Howell as explaining that "in most instances" the overcharges "appeared to have been deliberate" but that no case of "outright fraud” had been uncovered.

Quite apart from any action taken by the companies involved, the extent to which refunds are or will be made to those who are entitled to receive them appears to depend largely upon the diligence which the various State insurance commissions devote to the task.

Examples of the aggressive action taken in Massachusetts have already been cited. There, Insurance Commissioner Joseph A. Humphreys has sought diligently to obtain complete refunds for all policyholders entitled to them. Through repeated statements to the press, he alerted Bay State citizens to the situation and has been forthright in publicly naming the companies involved.

The State of Connecticut presents another outstanding example of what can be accomplished by an energetic and dedicated insurance department. In a letter to the better business bureau dated February 28, 1956, Insurance Commissioner Thomas J. Spellacy stated:

I argued against the resolution adopted by the National Association of Insurance Commissioners at their convention in New York, and did not vote for it. In Connecticut, we are proceeding to have all illegal charges from all companies returned to policyholders regardless of the date of the issuance of the policy.

In Connecticut, the practice of overcharging dated back to July 27, 1953, when the regulation establishing the two rates was put into effect, the premium charge for the class II policy being as much as 45 percent more than the premium charged for the class I policy. To accomplish its objective, it was first necessary for the Commission to screen 260 companies licensed in Connecticut to determine if they had written collision financed business. Two hundred and forty-five companies were eliminated after review. Connecticut insurance examiners traveled to the home offices of the remaining 15 companies and obtained controlled tabulating runs listing Connecticut policyholders. These runs produced the names of 58,000 Connecticut policyholders charged the class II rate.

Beginning in January 1956, the companies and their Connecticut representatives, under the direction of the Connecticut Insurance Department, began sending out questionnaires to these policyholders. If these failed to get a response, followup letters were sent out by the commission itself and these elicited a high percentage of replies. Commissioner Spellacy has explained that many people who get a questionnaire from an insurance company figure that it is a move to increase their rates, and ignore it. He said that most of the people who have been victimized by the overcharges are in the lower-income brackets. Many of them are transient and it's hard to catch up with them. As one answer to these problems, Mr. Spellacy sent several releases to Connecticut news media intended to give the public the full facts about the situation and reassure them that replying to the questionnaires would be in their own interest.

As a result of this painstaking effort, Commissioner Spellacy was able to report on December 2, 1956, that refunds of more than $450,000 had been won for 21,000 auto-insurance buyers who had been overcharged by the 15 companies operating in that State. He added that

the job was still going on, that there was no telling how long it would take, or how much money would eventually be refunded, but he was determined to continue the campaign until every possible refund had been made. Meanwhile, he said, his inspectors are making continuing checks to see that no further overcharges are made.

Reporting on these results, the Bridgeport Herald, for December 2, 1956, stated:

Spellacy's campaign has been in marked contrast to the look-the-other-way approach of most other insurance commissioners.

On September 28, 1956, the day after the NBBB bulletin was released, Tennessee Insurance Commissioner Arch E. Worthington told the Memphis Better Business Bureau that following an investigation by his department in 1955, Service Fire had been ordered to review every policy they had sold since June 30, 1955, and to refund all the money their customers had been overcharged. The Memphis BBB was informed that the company sent out some 5,000 letters, and on the basis of 794 replies received had refunded some $22,000 in premium overcharges. Commissioner Worthington said he felt the firm was not "trying to be crooked" but simply negligent in determining the exemptions to which automobile owners were entitled.

Commissioner Worthington said that the Cavalier Insurance Co., Calvert Fire Insurance Co., and Emmco Insurance Co., had also been subjected to a thorough investigation in 1955, but were not found to be misclassifying insurance policies.

I am not suggesting that conditions in Connecticut and in Tennessee, which has 11⁄2 times the population of the New England State, were identical. However, no profound exercise of either the intellect or the imagination is required to discern the difference in the corrective and protective measures taken by the insurance departments of the respective States and in the results obtained.

A neighbor of Tennessee which has taken vigorous action in the interest of its car owners is the State of Kentucky. There Insurance Commissioner Cad P. Thurman has not restricted himself to the NAIC proposal for the checking of persons holding policies as of June 30, 1955. He is seeking to obtain refunds for all residents of Kentucky who have been overcharged during the past 5 years. On September 25, 1956, Commissioner Thurman reported that Kentucky motorists had collected some $150,000, but, he said, "still have more than $2 million coming to them in refunds." As in Connecticut, Commissioner Thurman has given wide publicity to the campaign that his office is conducting.

Efforts of the better business bureaus to discover what is being done in other States have brought mixed results. Thirty-two State insurance commissioners gave no answers to the better business bureau questionnaire seeking to clarify the NAIC resolution. In many other cases little specific information was elicited. The exhibit which I am submitting notes the replies to the Better Business Bureau questionnaire, or the failure to reply, in the case of each State insurance department. Some, such as Missouri, have disclosed information or additional information since the publication of our bulletin. To the extent that such facts are available to us they are also noted in the exhibit.