AUTOMOBILE MARKETING PRACTICES FINANCE AND INSURANCE THURSDAY, MARCH 21, 1957 UNITED STATES SENATE, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D. C. The subcommittee met at 10 a. m., in room F-41, the Capitol, Washington, D. C., Senator A. S. Mike Monroney, chairman, presiding. Senator MONRONEY. The Subcommittee on Automobile Marketing will resume its sitting. The record will show Senators Payne and Monroney are present. Senator Thurmond is not able to be here at this time because of important state business at the Pentagon. Our first witness for today is Mr. William Cobb, vice president, Industrial Insurance Co. We understand you are anxious to leave the city-have another appointment elsewhere-and we are glad to have you go first today. Would you state your name for the record, and be sworn? Mr. COBB. My name is William L. Cobb. Senator MONRONEY. Do you solemnly swear, Mr. Cobb, that the testimony you are about to give in this hearing will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. COBB. I do. Senator MONRONEY. Thank you. Sit down. I don't believe you have a prepared statement, do you? Senator MONRONEY. Would you care to discuss this case? You have heard the statements, I presume, or read the record of the allegations made by the better business bureau on the overcharges, and you are familiar with the correspondence that the committee has had with you. the Mr. COBB. I would like, sir, to make an oral opening statement. Senator MONRONEY. Fine. We want you to feel free to proceed in way that is best for you. TESTIMONY OF WILLIAM L. COBB, VICE PRESIDENT, INDUSTRIAL INSURANCE CO. Mr. COBB. As Mr. Busby knows, and I hope Senator Payne, and I hope, Mr. Chairman, that you are familiar with this, you invited George Olmstead, the president of this company, to appear before the committee. Mr. Olmstead is in Europe on a vacation and pleasure trip, and upon cabling him regarding your request he advised me to offer to appear in his stead, which I did, and which Mr. Busby accepted. AUTOMOBILE MARKETING PRACTICES Senator MONRONEY. You will be capable of speaking for him? Mr. COBB. I think I will be capable of speaking for him, and in the event, sir, that you desire to hear Mr. Olmstead some time next week he will be available, and will be pleased to appear. Senator MONRONEY. You have notes. Would you like to go ahead with your opening statement? Mr. COBB. I would like, sir, if it is satisfactory with you, to answer your questions, and if at the conclusion of your questioning I have some facts that I think would help you I would like to be permitted to give them. Senator MONRONEY. Does counsel have questions he would like to start with? Well, I will start. As you know, yesterday, and in the previous hearings, we have been trying to find out if any of these insurance companies alleged to have made these nationwide overcharges in placing people in class II who belong in class I-if there were any records kept by your company as to the percentage of writing you were doing in these various classes? Mr. COBB. No, sir; our company did not have, but may I explain that, sir. Senator MONRONEY. I would appreciate it if you would. That seems to both Senator Payne and myself to be the most unusual thing, that with statistical records running out of your ears, that the one particular statistic that would show the extent of overclassification is not available to this committee. Mr. Cовв. Prior to 1944, when the Supreme Court declared insurance as interstate commerce, and subsequently Public Law 15 was passed, prior to that time the majority of the companies, and the companies with whom I was affiliated, not Industrial, because Industrial was not organized until (sic) 1956, maintained their own records for the purpose of determining their experience and setting their rates. Now, up until 1944, or possibly 1945, I was in the service at that time, but it was either late 1944 or early 1945, prior to that time, in connection with automobile insurance, very few of the States required that experience be filed to justify rates. Competition kept that very much in order. Now, as a result of the change it was necessary in all States to file experience justifying a rate or a rate increase or a rate decrease. Companies who had previously been keeping their own statistics joined nationwide statistical organizations who filed the experience of a large number of companies, the reason for that being, for example, in one State we might have a very small volume of business, and for us to produce our premium and loss figures would not mean anything in promulgating a rate. Consequently, your nationwide statistical organizations were formed and most companies, with the exception of a few independent companies, such as Government Employees here in Washington, and several others throughout the country, joined these nationwide organizations. Now, the procedure, gentlemen, in connection with the information-each policy would be coded, and a key punchcard prepared. Those key punchcards in our case, and I think in most cases, were forwarded monthly to NAUA; that is, both the premium and the loss cards. When they were received by NAUA and the other similar organizations, they were merged with all of the member companies, so that Senator MONRONEY. Do you mean they were all shuffled in for the same State? Mr. COBB. Yes; they were merged for all companies by State. Mr. BUSBY. May I interrupt here for a minute? Mr. COBB. Yes. Mr. BUSBY. First, they do certain runs for the company, do they not, before they merge them? Mr. COBB. I am not sure of that, sir. They have never supplied us any individual information on our particular business, so I assume not, but I could be mistaken. Senator MONRONEY. Your position is they take your company and all of the other companies, stock companies, mutuals, all that they do rating for, and that there is no differentiating whatsoever as they run those cards for each State through the punchcard machines; it is just a general average? Mr. COBB. That is my understanding. Senator PAYNE. Do you retain any punchcards in your own files? Senator PAYNE. Is it punched for class? Mr. COBB. No, it is not punched for class. Senator PAYNE. It is not punched for class? Mr. COBB. No. It gives us a record of our in-force business so we can determine our earned premium and our unearned premium. Senator MONRONEY. But there must be a record that you keep on punchcards to show the classes. Even Service Fire said they had that. It would take 6 months to run them for all of the States, they said. Mr. Cовв. Sir, that is another situation. Now, we can, if you desire, go back and repunch every in-force policy that we have a record of. Senator MONRONEY. Repunch it? Mr. Cовв. Premium card. Mr. BUSBY. In-force policy? Mr. COBB. Yes. Senator MONRONEY. That wouldn't give us those that were out of line in 1954? Mr. COBB. Well, we could take all of the policies that were issued. Senator MONRONEY. You would have to go clear on back. Mr. Cовв. Back to 1953; yes. Senator PAYNE. Didn't you punch the cards sent to the national association; didn't you punch those by class? Mr. COBB. Yes, sir; we punched those by class, but that card, sir, went to NAUA. Senator MONRONEY. It still is in their possession? Mr. Cовв. Yes. Senator MONRONEY. Are you sure? I thought they destroyed it. Mr. Cовв. Well, they may destroy them, but we do not get them back; that is what I mean. Now, we can recode all of the daily reports. A daily report is a copy of a policy. We can recode all of 91018-57-pt. 1——21 those, repunch them, and make a run on the basis of our business, which is much smaller than some of the others; we estimate that it would take us from 2 to 3 months and cost us approximately $6,000 to do that. And, sir, if you request it, we will be glad to do it. It will take us a 60- to 90-day period to do it. Senator MONRONEY. You are examined by your own people? Senator MONRONEY. What are your figures for 1951 to 1955 in that examination, as to the percentage of classes of your risks? Mr. COBB. There were no such figures in the examination reports. Senator MONRONEY. Your examiners paid no attention whatsoever to the percentage of risks? Mr. COBB. They test checked our daily reports to see if the rating was done in accordance with our filings. Senator MONRONEY. What do you mean by that? Mr. COBB. Well, they would take, say, a certain number of dailies and check those dailies to determine whether or not rating had been done in accordance with the filings that we had with the various insurance departments. Senator MONRONEY. But, up to the 1955 period, anything that wasn't in your company copper riveted, and proven to be on the record subject to class I or class III rates, was automatically, without question, put into class II; wasn't that a fact? Mr. COBB. Well, I am not sure that we should go that far on that. Senator MONRONEY. Would you tell us what your policy was? Mr. COBB. In 1950, different months in 1950, in various States, most of the States established classes I and II. Senator MONRONEY. Ten-percent differential in the last quarter of 1950, I believe. Mr. COBB. Now, the base rate was X dollars, or 100 percent. In the event that a person was willing to state that there were no drivers under 25 years of age, that the car was not used for business purposes, and was willing to sign a statement to that effect, not a notarized statement, just a statement to that effect, he would get the 10-percent discount. Otherwise, he would not. Senator MONRONEY. The way you interpret it, he got a 10-percent discount if they signed? Mr. Cовв. That is right. Senator MONRONEY. The other companies, most of which were writing on the proper rate at their great disadvantage financially, were considering that the class II rate was a surcharge. Mr. COвв. The actual filing was X dollars, with a 10-percent discount if they did that. Mr. BUSBY. The 100 percent would represent manual rates, wouldn't it? Mr. COBB. Yes. Mr. BUSBY. How much more was the class II rate than a hundred percent? Mr. Cовв. Well, the 100 percent was the rate unless a man was willing to say that he did not have any underage drivers, and did not use the car for business, and sign a statement to that effect. If he did that, then he received a 10-percent discount. Mr. BUSBY. Let me ask this: How much less than the 100-percent rate was the class I rate? |