Mr. BACKMAN. Right, sir. Senator MONRONEY. Do you feel that to some degree the failure to aggressively and vigorously pursue the restitution of these overcharges which you say, and which several of the insurance commissioners have said, was deliberate and planned, is carried out by the sense of the resolution passed by the NAIC at their New York meeting? Mr. BACKMAN. Well, it seems to me that the resolution treated the whole situation very mildly and didn't propose a very good remedy. Senator MONRONEY. Would that be the thing that in the earlier statement by Mr. Barnard was termed as a "whitewash"? Mr. BACKMAN. In my opinion, it is a whitewash pretty much, yes. Senator MONRONEY. In other words, the language of the resolution was such as to first cast doubt on whether any refunds to the customer or the buyer of the car were even due. In the paragraph that raises the matter of whether there is any-I will read the paragraph: Whereas, there exists a grave question of law in most States as to who may be entitled to the return of any overpayment. Apparently even before this was written into the resolution, the State of Texas, through the voluntary action of the insurance company, had begun to make refunds; is that not correct? Mr. BACKMAN. Yes; quite some time before this meeting. Senator MONRONEY. In other words, they would not have been apt to have made that unless they felt the customer was due this amount, and there was not much question of the fact of law that they would be passing out those hundreds of thousands of dollars? Mr. BACKMAN. That would seem to be a reasonable conclusion. Senator MONRONEY. Would you think that had the insurance commissioners at this meeting adopted a more vigorous stand and a program for carrying out these nationwide refunds-by which all of the insurance companies guilty of misclassification could have standards to go by-that the refunds would have been carried out in a more orderly and a more complete way? Mr. BACKMAN. I think they would sir. Senator Monroney. In other words, the Connecticut commissioner which you outlined first did not rely on the companies themselves compiling the lists to which they were going to send letters asking if the class II policyholders were properly classified? Mr. BACKMAN. No; he went and got them. Senator MONRONEY. Went to the home offices of the conpanies, secured the lists of the class II policyholders, and had that independent list? Mr. BACKMAN. That is right. Senator MONRONEY. Then your statement shows in conjunction and cooperation with the insurance carrier, but with the supervision of the department, they circularized these lists presumably on the names that he, himself, or his agents, had acquired from the home office records? Mr. BACKMAN. That is right. Senator MONRONEY. In many other States this was simply left to be compiled by the insurance company without any supervision as far as you know by the State insurance authorities? Mr. BACKMAN. As far as I know, that was the way it was done, sir. Senator MONRONEY. And there was no legal authority of the regulatory body, the insurance commissioner's office, that a check or affidavit be furnished so that they would be sure a letter had been sent to all of the people in the higher class? Mr. BACKMAN. As far as I know, that is the way it was done. Senator MONRONEY. Following that in Connecticut the insurance commissioner followed it up with a second letter to all of the ones who had not replied to the first letter? Mr. BACKMAN. Yes, sir. Senator MONRONEY. So they were checked in detail and people who had not replied were given an opportunity to over the signature of the insurance commissioner? Mr. BACKMAN. Yes, sir; that is right. Seantor MONRONEY. And you pointed out in your testimony when it comes from the insurance commissioner it is more apt to receive a reply than where it is a circularization by the insurance company, themselves; is that correct? Senator MONRONEY. Following that, in Connecticut, knowing the large number of people who would have moved or be hard to locate by these letters, he aggressively carried out a press campaign with the public, that there was a possibility they might be due a refund because of misclassification of their policies? Mr. BACKMAN. That is right. Senator MONRONEY. That would be one of the reasons why the highest percentage of the refunds for the letters sent was in Connecticut, and the next highest came in Massachusetts where they were aggressively searching the records of the home office for these details; is that correct? Mr. BACKMAN. Yes, sir. Senator MONRONEY. Kentucky, you stated, has also received a larger amount of refunds than many of the States in that area, and the Commissioner there has aggressively sought through publicity to notify the policyholders of their probable rights under misclassification? Mr. BACKMAN. That is right. Senator MONRONEY. And is not putting on a 5-year cutoff date? Senator MONRONEY. Do you have any idea why the cutoff date was apparently being passed by the Association of Insurance Commissioners, by resolution. Would it tend to give some formal tacit approval that that circularization as of that date was all that was required for full restitution? Mr. BACKMAN. It would; yes. Senator MONRONEY. But this organization has no authority at law? Mr. BACKMAN. No; that is just a resolution and, of course, Connecticut and other States didn't go along with the resolution. But a great many of them seem to have been satisfied with that. Senator MONRONEY. You don't have any knowledge, though, whether the commissioners knew about what was in this resolution before they came to the meeting, or that they had personal knowledge of how great the overcharges might be in their home States? Mr. BACKMAN. Well, I think the story of what had happened down in Texas must have been pretty well known to insurance commis sioners, and there had already been this investigation conducted in New York of Service Fire nationally. They certainly knew that, but the explanation that we got from a couple of them, as I say, was that it would be very difficult to go back beyond this period. The records had been destroyed, or they weren't readily available, and they also raised a question about the differential not having been very great in early years. Senator MONRONEY. So that was just brushed aside, since it was only 10 percent for 3 years-10 percent for 3 years would be 30 percent; would it not? Mr. BACKMAN. That is quite a lot; yes. Senator MONRONEY. And in most States it was effective at the smaller amount for the 3-year period, before the 30-percent premium differential went into effect? Mr. BACKMAN. Yes, sir. Senator MONRONEY. But this apparently would seek to give some at least group approval of the cutoff date being "fair and reasonable", to use the terms of the resolution? Mr. BACKMAN. That is what they called it. Senator MONRONEY. Apparently at that time had several of these insurance companies were they known pretty generally to be suspect of overcharging and misclassifying? Mr. BACKMAN. Yes. Certainly in Texas several of those names had been brought out. Senator MONRONEY. Well, it is no trouble for these insurance companies, and it is their duty, is it not, under all State laws providing regulation, to know the proper rates to which the policyholder is entitled? It is not the duty of the automobile dealer, if he doesn't occupy the position of an agent. In other words, can the insurance companies absolve themselves by the fact that the dealer who writes the policies in most of these cases failed to get all of the information as to the children under 25 that would drive the car? Mr. BACKMAN. Well, I certainly don't think they can absolve themselves on any moral grounds. As to what the law would be in various. States, I am not competent to answer that, Senator. Senator PAYNE. But if the States uniformally had in effect a law that automobile dealers who assigned personnel for the placing of this insurance were required to be designated as insurance agents and qualify under the examination laws of the States, they then would have a check up on it, wouldn't they? Mr. BACKMAN. Yes; they would, sir. Senator PAYNE. All right. In Maine, incidentally, the General Motors Insurance has for some time insisted upon those connected with agencies there who handle the insurance amounts-that they be designated as insurance agents, and they are required to take the examaination and qualify. Now, also, I just thought I would mention in Maine, George Mahoney, who was the insurance commissioner there, who happens to be one of my appointments, has written to me. He, too, is working very closely with both Connecticut and Massachusetts on this matter, and he writes me that he has consistently refused to give in and accept as gospel the company's assertion that it is unable to refund on policies issued back beyond the time of the collision classification plan when it was first approved in Maine in 1902 simply on the basis that its old reports have been destrovel And he further sets forth-Boz't know whether this is uniformly true or not-but he sets forth, that if necessary, be undoubtedly is going forward to a check of the offices of the city and town clerks in the State in order to take the conditional sales agreements that are recorded there and secure the information, himself. if he cannot get it any other way. Mr. BACKMAN. He is to be complimented, sir. Senator MONREONEY. Mr. Busby. Mr. BUSBY. Yes: I would like to ask. for the purpose of getting the record straight-you have, do you not, a compilation of the replies to Mr. Barnard's questionnaire from each State indicating what each State has done about misclassification! Mr. BACKMAN. Yes, sir. Mr. BUSBY. I think that should be placed in the record. Mr. Chair man. Senator MONRONEY. Yes. (The material referred to is as follows:) EXHIBIT Submitted with the statement by Allan E. Backman. Executive Vice President, National Better Business Bureau, Inc., before the Subcommittee on Automobile Marketing Practices, Committee on Interstate and Foreign Commerce, United States Senate on the subject: "Automobile Collision Insurance Overcharges” On February 24, 1956. Kenneth Barnard, president of the Chicago Better Business Bureau in his capacity as chairman of the committee on installment contracts of the Association of Better Business Bureaus addressed the following questionnaire to the insurance commissioner or director of each of the 48 United States of America: "GENTLEMEN: In the public interest-and referring to the recent resolution of the National Association of Insurance Commissioners-we should appreciate your courtesy in answering the following questions: "1. Did not the overcharges, to which such resolution referred, concern misappropriation of funds collected from policyholders, instead of possible misclassification of some insureds charged premiums in excess of the applicable rates? 2. Does the resolution cover refunds only to insureds having policies in force as of June 30, 1955? 3. If so, how about all policyholders having policies written since the issuance of authority for the penalty' premium some years ago? Will they receive refunds, likewise? 4. What company, or companies are involved in your present investigation? “5. What is your estimate of the total amounts collected without legal warrant, as described in the resolution? “6. Why is there a 'question of law' in most States as to who may be entitled to the return of any such overpayment? 7. Why, in your judgment, are only those insurers engaging in the business of automobile physical damage insurance covering financed cars' involved? “8. Isn't it a fact that ‘one of those insurers which may have misclassified assureds' has admitted it, and now claims to be effecting refunds to policyholders affected? 9. Why, in your judgment, should any 'settlement' reached excuse, in effect, obvious violations of law and, if it does excuse them, how can such 'settlement' be deemed fair and reasonable? "It is realized that some of the language in the resolution of the National Association of Insurance Commissioners may not refer to any conditions now prevailing or which later may be uncovered-in your State. Even if this he true, an expression of your personal opinions will be welcome. Thanking you for an early reply, "Sincerely yours, "KENNETH BARNARD, "Chairman, Committee on Installment Contracts, Association of Better Business Bureaus, Inc." In the following pages, in the case of each State alphabetically listed, there is reproduced the reply received to this questionnaire, or the failure to reply is noted. Information subsequently received from any of the insurance departments or becoming available to the National Better Business Bureau with respect to their activities in this matter is also summarized. No reply to questionnaire. ALABAMA However, the Better Business Bureau of Mobile County reported on September 10, 1956, that in response to further inquiry from that office, the following letter was received from Donald Pierce, deputy superintendent, fire casualty division, Alabama Insurance Department: "This office does not wish to become engaged in a long-drawn-out exchange of words with your organization or any other based on a difference of opinion as to the propriety of what has been done or has not been done by the National Association of Insurance Commissioners. "As a result of information coming into hands of this office, one insurance company has adjusted more than 1,200 cases in the State of Alabama and has returned more than $50,000 in premiums to Alabama citizens. These refunds resulted from action taken by this department. "Numerous other companies have been called upon to investigate the propriety of rates which they have applied in writing coverage for Alabama citizens and have adjusted premium charges accordingly. "In addition, this office has frequently in the past investigated complaints regarding private passenger car classifications and has caused premium revisions in those cases where the complaints were well founded." ARIZONA No reply. However, the Phoenix Gazette for November 28, 1956, quoted Gordon Short, of the Arizona Insurance Department, as reporting $3,200 in refunds by an unidentified company. He expressed doubt that there would be many refunds by other companies operating in Arizona. ARKANSAS While no reply to original questionnaire was received, the National Better Business Bureau subsequently received two letters which are reproduced as follows: Mr. ALLAN E. BACKMAN, STATE OF ARKANSAS, Executive Vice President, National Better Business Bureau, Inc., This depart DEAR MR. BLACKMAN: This is in reply to your letter of April 26. ment conducted some investigation into the misclassification and overcharge of automobile owners on their collision-insurance policies and has taken steps to require the refund of such overpayments to policyholders. After 2 or 3 conferences with the company, they agreed to circularize Arkansas policyholders with questionnaires agreed upon and if they found the policyholder had been misclassified and overcharged they would make refund. To be more specific, the company that we are dealing with at this time is the Service Fire Insurance Co., of New York, and they have made refund to this date of something over $36,000 and the job is only about one-third completed. There are at least two other companies that will be handled in the same way if we are convinced that this method is the best and most accurate. The Little Rock papers did carry a story about this matter and also a story was carried in some of the insurance journals, but we have no copies of these stories that we could send you. Very truly yours, HARVEY G. COMBS, Insurance Commissioner. 91018-57-pt. 1--4 |