[From the Weekly Underwriter, Saturday, Sept. 5, 1970]

ANOTHER HORROR STORY.

It's easy to shrug off a lot of the flak insurance companies get as the wild shots fired by disgruntled, uninformed or greedy insureds.

Not so easy to shrug off, is the letter we got from the top official of a mediumsized life insurer. His broadside was triggered by an editorial we ran under the title, "A Horror Story" (Weekly Underwriter, August 1), which described the cavalier cancellation practices of one property-casualty company.

Our correspondent, who is in his middle 50's and has had his driver's license since he was 18, describes a respectable driving record: never a moving accident where he was at fault (twice he was struck by other vehicles); one speeding ticket, received when he was 18; a ticket for going through a red light at a traffic "ambush," received 15 years later.

He goes on to describe his treatment at the hands of a giant casualty insurer which, some 18 months ago, refused to issue insurance either on the car assigned to him from his company's fleet of leased vehicles or on his personal car. The insurer in question-with whom this gentleman had done business for many yearsgave only the vaguest reasons for refusal to renew.

An isolated incident? Not according to our correspondent. He details his experience with another of the giants, which insures his fine arts collection under a personal property floater. An art object, insured for more than $10,000,was damaged. Because of the special nature of the object, it was necessary to employ an expert on the staff of a large museum to make the repairs.

The insured reports: "It took five months and 29 letters from me before the company approved the repairs. It took seven more weeks and four more letters before the man's bill was finally paid." And this, mind you, involved a repair bill of only $400.

I think there are two points that need laboring. First, if an insured with a good driving record, high social standing and imposing professional qualifications has trouble with two or our largest insurers, where does the less heavily armed insured stand with those companies?

Second, where does it leave the public image of insurers when a man in a position to make his voice heard far and loud is unnecessarily angered? And in case you have any doubts about this gentleman's attitude toward the property-casualty business, here is the final paragraph of his letter:

"As far as I am concerned, the managements of most of the property-casualty companies have demonstrated their incompetence, their stupidity and their lack of worthiness to lead great financial institutions, and the utlimate nationalization of the property-casualty industry will rest squarely upon the shoulders of' the men who, for the past 50 years, have led that industry into its decline."

J. K.

[From the Weekly Underwriter, Saturday, Sept. 19, 1970]

SON OF DRACULA ..

...

The editorials we ran ("A Horror Story," Aug. 1, and "Another Horror Story,' Sept. 5), chronicling the cancelation abuses of insurers, seem to have touched some deep discontent within the bosom of the insurance business. If the following comments came from an insured, they would be more easily disposed of; when a man who is obviously intelligent and articulate, and has probably spent much of his life in a business, is bitter about that business, one must suspect some fundamental rottenness in the state of Denmark.

It's probably unfair to keep pressing on a spot that is sore, if not downright infected; but perhaps, since the vigor and sincerity of individual complaints has apparently had little effect so far, the ache of repetition will.

We reprint this letter, as the paperbacks say, "complete and unexpurgated": Re: "Another Horror Story. ." The unfortunate part of your editorial is that it wasn't printed in big, bold type so that some of the myopic insurance personnel would be able to read it more readily. Whether they would understand it, of course, would still be the $64 question.

Definitely, the situation referred to in your editorial is not an isolated incident. Underwriters seem to be "book read." They appear to go completely out of their way to find reasons for not writing business and for cancelling coverages which they have had in effect profitably for many years. For instance, try to find an

insurance company that has literature explaining the operation of the 80 percent co-insurance clause or literature readily understandable by the layman showing how much insurable values have increased.

The common courtesy element in dealing with the producer appears to be practically nonexistent. Quite frankly, I am almost convinced that complete nationalization of the property and casualty industry would be for the common good. The American insuring public, particularly the small insured and even some of the larger ones, quite frankly, appears to be the low man on the totem pole from the standpoint of being able to secure proper coverage and have their policies issued and losses paid.

Does any industry have more enemies among the general public than the property and casualty industry? As far as having friends in high places-i.e., the various insurance departments-the lack of the same is also an indication of the overall incompetence among property and casualty insurance executives. Not to be overlooked is their inability to present up-to-date, refined figures indicating needed rate adjustments on a plus or minus basis. On the other hand, these same companies can very meticulously find reasons for cancellation of agencies because the loss ratio to them appears to be out of line, and yet the same agencies' loss figures on an overall basis are far better than the state or nationwide experience of the insurance company involved.

You could write a "horror story" each week. Just go out and visit a few agencies and/or brokers and ask them to relate to you some of their experiences.

You may wonder why this letter will not be signed, the reason being that if it were signed, it would result in cancellation of our agency contracts.

J.K.

[From the Wall Street Journal, Oct. 6, 1970]

INSURANCE CRISIS-MANY MOTORISTS FIND AUTO POLICIES CANCELED FOR NO APPARENT REASON-FIRMS, IN A FINANCIAL BIND, ARBITRARILY CUTTING BACK; LITTLE RECOURSE FOR VICTIM-SOME COMPANIES BOW OUT

(By Priscilla S. Meyer)

Frank Buryta is a mild-mannered, 37-year-old auto repairman. He owns a safe' well-maintained 1965 Ford station wagon, rarely drives more than 40 miles an hour in his sleepy hometown of North Tonawanda, N. Y., and hasn't had an accident in some 15 years years of driving.

Last month his insurance was canceled.

The only "wrong" that Mr. Buryta committed was his decision to continue living in the state of New York. His insurer, Grain Dealers Mutual Insurance Co. of Indianapolis, has decided that it can't afford to insure people who live in New York, New Jersey, Connecticut and Rhode Island, and so it simply has stopped selling and renewing auto policies in those four states.

The action is extreme, but not unique. In fact, arbitrary refusals to renew auto insurance policies are becoming commonplace. Thousands of drivers who have been paying their premiums on time and avoiding accidents are suddenly finding themselves without insurance. Some companies are getting out of the business altogether-College-University Insurance Co. of Indianapolis is dropping all 6,000 of its auto policies-and others are dropping everyone in certain categories, such as all people over 65 or all people in New York.

"A CRITICAL SITUATION"

Big and small companies alike are acting. Nationwide Mutual Group, the nation's fifth largest auto insurer, last week decided to stop all sales of new policies on personal cars, though it will continue to renew its old policies. Liberty Mutual Insurance Co., another large insurer, has fired 25% of its auto-policy sales force and has clamped tight restrictions on sales of new policies everywhere. Three Texas auto insurance firms, which used to write auto insurance with $12 million in preminums each year, have gone into receivership.

"The situation could scarely be more critical-barring a complete collapse of the private insurance industry," says Robert Coburn, president of the Independent Mutual Insurance Agents Association of New Jersey, a 2,000-member agent group. In an emergency action to protect motorists, New Jersey has temporarily forbidden the cancelation of any auto policy.

The insurance companies say they're as sorry about the cancelations as the policyholders are, but the firms insist they have no choice. They are losing so much money on auto insurance that they simply can't afford to insure some groups of people, the companies assert. They contend that states won't let them raise their rates nearly fast enough to cover the huge increases in payouts on claims. They say that rates generally have risen about 50% over the past decade but that total payouts have increased far more.

Many insurers say that their auto operations have been losing money for some time but that until recently the losses were offset by money earned from investment of premiums. But the declining stock market has cut into these profits of late, some insurance companies say, forcing them to take a harder look at the auto business.

Over the past 10 years, the industry has paid out $2 billion more in claims than it has taken in in premiums, according to a spokesman for the Insurance Information Institute. Losses have been increasing each year, he says.

SOME SOLUTIONS

Many solutions have been proposed, but few are acceptable to both insurers and motorists. Union leaders in New Jersey, where hundreds of policies were canceled before the state imposed its freeze, have urged the state to take over the auto insurance business. Several states are considering adopting "no-fault" insurance plans similar to the one scheduled to take effect in Massachusetts on Jan. 1; under that plan each driver's insurance company must immediately cover accident claims of up to $2,000 regardless of who is at fault. The Massachusetts plan is coupled with a 15% cut in rates. Sen. Philip Hart (D., Mich.) last month introduced legislation to set up such a plan on a national level.

When policies are canceled, the motorist often doesn't know where to turn. Some, like Mr. Buryta, the auto repairman, can find another company willing to insure them. Some, like Joe Corcoran, a retired 67-year-old businessman from Beverly, N.J., go to the state for help. Mr. Corcoran, whose policy was canceled for no apparent reason, asked the state insurance department to investigate, and it discovered the policy was canceled simply because Mr. Corcoran was over The state then pressured the company to reinsure the motorist.

"CAN'T HELP EVERYONE"

"But we can't go to bat for everyone," sighs Walter Davis, one of the harried New Jersey insurance officials who handles such matters. Mr. Davis adds that's one reason the state banned all cancelations as of June 26.

Many policyholders have no choice but to sign up for so-called assigned risk policies. These are plans set up by all auto insurers in a state to take care of people who can't buy policies directly from a company. Policies are assigned by dealing them out in proportion to each company's share of the voluntary market. They typically cost more-up to 200% above a normal policy depending on driving record-because the group includes all the accident-prone and otherwise undesirable drivers in the state. But besides cost, the policies have other disadvantages. In all but a few states, the plans offer only limited liability coverage (up to $20,000) on the other driver and his auto. And in all but four states the insured can't purchase any collision, fire or theft coverage for his own car-at any price.

In Texas, a state generally considered to have a low auto-accident rate, the swing to assigned risk policies has been staggering in recent months. Herman O. Bergeman, manager of the Texas Insurance Plan, which handles assigned risks, says applications are now running at the rate of nearly 17,000 a month, double the pace of last year.

One recent applicant was Herman Stetler, a foreign exchange student from Germany who's at the University of Texas. He knows English well enough to have passed the Texas driving exam with flying colors. And he has never had an accident. But he was denied coverage by all companies to which he applied. "I guess they were afraid he couldn't read the stop signs or something," says Bill Gammon, an agent familiar with the case.

But the move to assigned risk policies by motorists who have no other choice merely intensifies the crisis, insurers say. Since the assigned risk pool is generally made up of drivers who are bad risks, there tend to be more claims and higher losses by the companies. Surcharges cover only part of the increase, insurers say. And in states like New York, where assigned risks now make up about 10% of all auto insurance written, the burden on smaller companies is considerable.

"We just couldn't afford to write business in New York any longer," says James O. Steinbarger, vice president of Grain Dealers. "Assigned risk was killing us."

Regarded as particularly serious is the situation in Massachusetts, where Aetna Life & Casualty Co., Kemper Insurance Group, Allstate Insurance Co. and several other major insurers are considering getting out of the auto business if an across-the-board 15% rate cut goes into effect Jan. 1.

The companies don't object to the rate cut for the no-fault collision coverage on the driver's own vehicle. But they're incensed that it's also supposed to apply to other coverage-fire, theft and medical. Insurers contend such policies will cost far more than premiums will bring in.

A massive pullout by these firms, which write over $200 million in premiums each year, or about 43% of the state-wide volume, would dump an incredible load on the remaining companies-which say they can't afford to write any new insurance in Massachusetts now anyway.

"The snowball effect would be inescapable," says a State Farm Mutual Co. official. "It could lead to little else than a total collapse of private auto insurance facilities in the state." Whether the planned rate cut goes into effect hangs on the outcome of a recent lawsuit filed by over 100 companies contesting the proposals.

Senator HART. It is impossible to measure the sweep of public concern about any problem, whether it is Vietnam or shoes coming into this country, or anything else. But 3 years ago I started a study of automobile insurance in the Antitrust Committee. Over those 3 years I have received about 2,500 letters dealing with auto insurance. The bulk of that mail complained about cancellation or failure to renew. In the few weeks since the introduction of this specific legislation that I have discussed, the great bulk of the mail complaints about the failure to compensate under existing insurance systems, the failure to compensate is now the dominant theme of this mail.

I would hope, Mr. Secretary, that we are in agreement, and I am sure we are, based on your statement, that the automobile accident compensation problem is an interstate problem in the sense that virtually everybody has a car.

Secretary VOLPE. No question about it.

Senator HART. And in one form or another you are almost compelled to have insurance. And too often, though they are guaranteed their market guaranteed in the sense that you can't drive without itthey won't underwrite.

Your study suggests, and I am sure we are in agreement, that the present system does a poor job of compensating victims. Would you agree that while this first-party coverage does have its problems, that it may offer a potential as a solution.

Secretary VOLPE. I certainly can agree with that statement, sir. Senator HART. I have, as you can guess, a slew of questions I would like to ask, but in fairness to everybody, I better not. I am delighted we have come this far.

I remember then Representative Cahill of New Jersey coming before this committee at the time this study proposal was before us. He came in prepared to argue against our going forward with the study in the Commerce Committee, insisting it would be a delaying device which would enable the whole subject to evaporate.

And he was after me to oppose the study: "Just go forward with the Antitrust Committee study, don't get diverted," he argued.

When Senator Magnuson and I explained we had no intention of permitting this study to intrude on the other activity, he accepted that. He has gone on to bigger and tougher problems in New Jersey,

but I hope when and if he has a chance to get a summary of this study, he will agree that it did make sense to have this kind of information and data available.

Secretary VOLPE. I would say as a former Governor I wish I had had available to me this body of information which is now available when I was pushing for reform of insurance in Massachusetts.

I am sure Governor Cahill and every Governor will be happy. And I hope our gang-I have already told them-very few Governors or Senators have an opportunity to read 18 volumes-what I would like to see is a summary prepared-we do have one now, but one in a little more detail-a summary of the total recommendations, so that Governors and others can review them. They should be very helpful in attacking the problem in the years ahead.

Certainly, in one way or another, the States are going to be involved. The degree to which they are involved will depend on the kind of legislation the Congress passes, of course.

Senator HART. Amen. You remind us, though, of the problem we confront if we begin our approach on the assumption that this is basically a State problem.

You are immediately talking about 50 Governors and 50 legislatures with several thousand legislators, not all of whom are wholly divorced from the insurance business in one form or another, attempting to inhale all of that data and then coming up with basically 50 uniform approaches.

Secretary VOLPE. It would be impossible, Senator.

Senator HART. It would be historic if it occurred.

We will get an awful lot of mail in the meantime if it takes too long. Senator PASTORE. Would you like to add anything, Mr. Secretary? Secretary VOLPE. I would like to set the record straight, if I may, with regard to a little colloquy I had with Senator Cotton particularly. Let me just say the Office of Management and Budget, which was referred to as having delayed some proposals, is actually the result of an effort on the part of the President to try to streamline an operation of the old Bureau of the Budget. It is our hope, and I believe it will come about, as a result of the outstanding capacity of George Shultz and some of the colleagues he has brought together there-I believe that various programs of our Department and other agencies will receive a scrutiny there that I think is desirable.

I would just hope there wouldn't be inordinate delay, and I don't expect there will be under the new setup.

Senator PASTORE. That is a matter of controversy between you and Senator Cotton for various reasons. Mr. Hart and myself are very much unimpressed, for obvious reasons.

We will let you Republicans fight that. We will have our day someday.

Senator HART. Mr. Chairman, I thought there might be other of our colleagues who had questions, so I didn't want to take the additional few minutes, but with your leave, let me.

To underscore the desirability, to use a mild word, of carefully analyzing a first party coverage approach, let me read excerpts from three of these several thousand letters that I have been getting.

Here is a letter from a 62-year-old woman in Maryland. She was hit by a car walking across the road on her way home. She points out that group health insurance paid her entire hospital bill plus