1. The number of policyholders to whom requests for rating data were forwarded.

2. The ratio of responses to such requests.

3. The number of policyholders entitled to refunds.

4. The number of refunds actually made.

5. The amount of such refunds.

For the record, Mr. Chairman, may I present this letter as exhibit No. 1.

(The letter referred to follows:)

EXHIBIT 1

STATE OF NEW YORK,
INSURANCE DEPARTMENT,
New York, May 10, 1957.

I am addressing this letter to you as the chairman of the subcommittee on insurance covering all installment sales and plans, and at the instruction of the subcommittee pursuant to action taken at an executive session held this morning at this office.

One of the most important matters before this subcommittee and parenthetically in the mind of the public is the question of premium overcharges resulting from misclassifications of certain automobile physical damage policies covering financed cars.

Almost a year and a half has elapsed since the NAIC, at its convention held in New York in December 1955, adopted a resolution recommending adoption by the several States of a proposed method of settlement of this difficult problem. Pursuant to such recommendation many States have followed the said proposed method; some adopted it with variations; others prescribed their own procedures, all with varying results.

Considerable public attention has been focused on the matter as a result of statements concerning it appearing in the regular daily press, as well as in trade publications.

Pointed inquiries have been made in a number of States as to the effectiveness of the refund programs and as to the sums returned to policyholders.

In the light of the public interest which has been generated, it is not unlikely that the volume of such inquiries will increase and become even more pointed. Thus, it would appear to devolve upon the NAIC to appraise results under the refund programs adopted by the several States and to determine whether further recommendations are in order at this time. To facilitate such determination, each State should furnish to this subcommittee as soon as possible, and prior to the upcoming meeting to be held in Atlantic City—

(a) the particulars of procedures instituted to prevent recurrence of misclassifications;

(b) the details of the refund program adopted;

(c) specimen copies of all communications and forms submitted to policyholders in connection therewith; and

(d) a schedule showing the following information by company, in respect to the refund program in your State:

(1) The number of policyholders to whom requests for rating data were forwarded.

(2) The ratio of responses to such requests.

(3) The number of policyholders entitled to refunds.

(4) The number of refunds actually made.

(5) The amount of such refunds.

It would seem appropriate for this subcommittee to include in its report for consideration by the full body of commissioners at the Atlantic City meeting a recommendation for such further action as may be required.

Will you please furnish the information hereinabove noted as promptly as possible, to the end that we may be in a position to summarize results for presentation at the June meeting in Atlantic City?

Sincerely yours,

LEFFERT HOLZ,

Superintendent of Insurance, Chairman, Subcommittee on Insurance
Covering All Installment Sales and Loans.

Mr. BUSBY. Did you ask, also, for the name of the companies refunding?

Mr. DOWNEY. Well, yes; we did ask for the name of each company; yes. At the June 1957 convention of the NAIC, the committee on insurance covering all installment sales and loans presented a summary of the progress reports that had been submitted by the insurance departments of the several States. As the refund programs in many States were then in progress, this report was of an interim nature and incomplete. The total number of refunds made was 138,899, and the total amount of refunds reported was $4,092,630. This was at the June 1957 NAIC convention, and the summary will be exhibit No. 2. (The document referred to follows:)

EXHIBIT No. 2
EXHIBIT A

Report by States of refund program for automobile collision misclassification

Mr. BUSBY. At June 1957, it was what?

Mr. DOWNEY. $4,092,630. The NAIC committee also presented summary statistics comparing New York State classification experience as reported by 11 insurers for the period July 1 to September 30 of 1954, with the experience reported by the same insurers for the period December 1, 1956, to January 31, 1957. This comparison indicated that the amended manual requirements had brought about a definite improvement in the accuracy of classification. This comparison was for 11 companies, showing the total prior exposure months and the percent that was allocated to classes 1 and 2. May I present that for the record as exhibit No. 3?

(The document referred to follows:)

EXHIBIT No. 3

TABLE I.-Comparison of statistics and ratios as reported by National Automobile Underwriters Association for New York State—Private passenger automobile collision risks, by class

Period, July 1, 1954, to Sept. 30, 1954 Period, Dec. 1, 1956, to Jan. 31, 19571

Senator MONRONEY. Could you identify those, companies A, B, C, D? I mean, these names were not divulged at the time?

Mr. DOWNEY. I believe you have the information in your files, Senator, and we do not happen to have it available here. If there is any question, by all means let us know, and we can fill in the details very promptly.

May I say that the largest insurer is omitted, largest insurer so far as total car exposure months, is omitted from that schedule.

Mr. BUSBY. These are the finance companies set forth in the exhibit we were referring to this morning, finance subsidiaries?

p. 18, finance companies.)

Mr. DOWNEY. Yes, Mr. Counsel.

(See pt. 1,

Mr. BUSBY. And leaving out General Exchange and Motors.

Mr. DOWNEY. That is correct. I believe you will have no difficulty in identifying the companies, because the figures have been checked and I believe they are accurately transmitted.

Mr. NAVARRE. Mr. Chairman, I think we might note the reason the code was used is that this was given general circulation.

Senator MONRONEY. I see. Well, since that time most of these people have come in and testified as to the fact that they did misclassify and admitted where we had the records in New York State, the percentage classifications.

Mr. DOWNEY. Also presented by this NAIC subcommittee to the State supervisory insurance authorities were detailed statistical reportings of all companies writing physical damage insurance, and a summary table of statistics indicating the classifications of risk, by States, all companies combined, as reported to the NAUA for the months of December 1956 and January 1957.

I shall present this as exhibit No. 4.
(The document referred to follows:)

EXHIBIT No. 4

TABLE II.-Statistics and ratios from data prepared by National Automobile Underwriters Association-Private passenger auto collisions risks classification, by State, for months of December 1956 and January 1957, all companies combined

I

Mr. DOWNEY. That is a statistical reporting by States, and may interject, Mr. Chairman, that in addition to that report, each commissioner was furnished a breakdown by company, by class. This was merely a summary. So that the statistical information afforded to

each commissioner would give him information as to the current classification of physical damage risk in his State for each company. Senator MONRONEY. That had not been done earlier. It is being done now as a standard reporting practice, is that correct?

Mr. DOWNEY. By this committee it has been done in the last 2 years, and I understand it is the intent and policy of the NAIC subcommittee to continue this procedure.

Senator MONRONEY. Of course, we learn from making mistakes. Politicians in the Senate, indeed, learn from making mistakes. And the fact this was not gathered at the time probably led to its failure to be caught at that earlier time; is that not a correct assumption? Mr. DOWNEY. I think that is so.

Senator MONRONEY. It was an oversight, and you trusted these people to properly classify, and had not asked for these percentage figures.

So now any insurance commissioner can look and see whether his State is far out of line with other States.

Mr. NAVARRE. Senator, I would like to make an observation because that, standing alone, is misleading.

We had no reason to do this before, because we did not have this classification problem.

Senator MONRONEY. Yes, that is right, earlier. It came in in 1953 and 1954.

Mr. NAVARRE. Yes, that is right. You see, we could not anticipate it until they changed the classes, and then when they changed the classes they gave rise to a problem which previously did not exist.

Mr. BUSBY. You mean there was no misclassification back as far as 1950 when there was a 10-percent differential, Mr. Navarre?

Mr. NAVARRE. As far as we know, there was no such misclassification. But, you see, they did not always have these classification filings in this

form.

Mr. BUSBY. But we should have had them all the way back, should we not, sir? I realize this is hindsight, but the statistical control should have been there all the way back to 1950, should it not?

Mr. NAVARRE. You are asking me a question about something that is diferent from what I am telling you.

Mr. BUSBY. I am sorry, sir.

Mr. NAVARRE. I am telling you that prior to the time they filed the automobile rates by classifications, we had no problem.

Mr. BUSBY. Yes.

Mr. NAVARRE. When they filed the rates by these classifications, the problem arose. So we could not anticipate that problem before it arose, because there was no problem. It just didn't exist.

Mr. BUSBY. Yes, sir. What I am saying

Mr. NAVARRE. That is all I am saying.

Mr. BUSBY. These classifications came in in 1950, and this statistical reporting came in in 1956.

Senator MONRONEY. Well, the 10-percent differential came in and the 2-class system around 1950, 1951. The 35-percent differential came in in late 1954, did it not, in many States, and in some States later.

Let me ask you on this exhibit 4, you give the breakdown on the percentages in each State, but you give it for all of the underwriters, do you not?