Committee Hearing, May 14, 2002

COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE ON LAW AND GOVERNMENT - - - Tuesday, 5/14/02 10:25 a.m. Room 696, City Hall Philadelphia, PA - - - RES. 020174 - Authorizing City Council's Committee on Law and Government to conduct a full and comprehensive investigation of the desirability of offering mile-based insurance to drivers in the Commonwealth of Pennsylvania and directing the committee to communicate its findings to the Mayor's Task Force on Automobile Insurance Rate Reduction and the Pennsylvania General Assembly. PRESENT: COUNCILMAN DAVID COHEN, Chairman COUNCILMAN ANGEL ORTIZ, Vice Chairman COUNCILWOMAN JANNIE L. BLACKWELL COUNCILMAN DARRELL L. CLARKE COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN MICHAEL A. NUTTER COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO TIM KEARNEY, COMMITTEE CLERK - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 5/14/02 LAW & GOV'T - RES. 020174 INDEX WITNESS State Senator Shirley Kitchen................. Kathy Miller, Pennsylvania NOW President...... 21 Estelle Richman, Philadelphia Managing Director 24 State Representative Ron Waters............... 42 Patrick Butler, Director...................... 55 Insurance Project, NOW National Office Jacob Gray, Resources for Human Development... 91 Dano Weissbord, CLF Ventures, Boston.......... 92 John Doubman, Secretary and Counsel........... 107 Insurance Federation of Pennsylvania Romulo L. Diaz, Jr., Esquire.................. 172 Chief Deputy City Solicitor City of Philadelphia, Regulatory Affairs 3 5/14/02 LAW & GOV'T - RES. 020174

The Committee on Law and Government is now in session. We're joined this morning by Senator Shirley Kitchen, and we're delighted to have her here; and by Councilman Darrell Clarke, who is not on the committee but is on the Insurance Task Force. The members of the committee currently present are: Wilson Goode to my left, and Councilwoman Marian Tasco, who is the sponsor of the resolution and who, together with her staff, has done most of the work in preparation of the committee. We're delighted to raise this very important issue, and I'm going to ask the clerk of the committee, Tim Kearney, to read the title of the resolution.

The Committee on Law and Government will hear testimony on Resolution No. 18 020174, a resolution authorizing City Council's Committee on Law and Government to conduct a full and comprehensive investigation of the desirability of offering mile-based insurance to drivers in the Commonwealth of Pennsylvania and directing the committee to communicate its findings to the Mayor's Task Force on Automobile Insurance Rate Reduction and the Pennsylvania General Assembly. 4 5/14/02 LAW & GOV'T - RES. 020174

Thank you. Thank you, Mr. Kearney. The first order of business is going to be some remarks by THE sponsor of the resolution, Councilwoman Marian Tasco.

Thank you. Thank you, David.

Councilwoman Tasco, we're delighted to have you start.

Thank you, Councilman Cohen. Good morning, everyone. I'm Marian Tasco and I represent the 9th Councilmatic District here in Philadelphia, and I am the sponsor of Resolution No. 16 020174 on mile-based auto insurance, which is the subject of today's hearing. Before we open the floor, I'd like to give these brief comments. I began to look very closely at the question of auto insurance rates and pricing after the City Administration announced its intention to begin an aggressive enforcement initiative called "Live Stop," which is designed to seize the cars of unregistered, unlicensed, and ultimately uninsured 5 5/14/02 LAW & GOV'T - RES. 020174 Philadelphia drivers. The more I looked into the Live Stop Program, the more concerned I became and the more questions I asked: I wanted to know why Philadelphians have so many insured -- why Philadelphia has so many uninsured drivers on the street; I wanted to know what happens to the Philadelphia residents who rely on their cars to transport them to and from their jobs if their cars are seized under Live Stop; I then questioned whether or not there are really any affordable auto insurance policies available to low- and moderate-income Philadelphians. The answers I found surprised me. I discovered that Philadelphia's auto insurance rates are three times higher than Pittsburgh's and twice as high as the surrounding four counties. In fact, even inside the City limits, auto insurance rates can vary widely, depending on a person's zip code. I found that a great number of decent, Law-abiding citizens of our city simply can't afford the cost of mandatory auto insurance. And this past Sunday -- and some of you probably read the same article in the Philadelphia Inquirer. The article 6 5/14/02 LAW & GOV'T - RES. 020174 read that many insurance companies are now using credit reports and credit scoring as the means to determine insurance policy rates, further causing us to have people who can't afford to have insurance, or can't even get insurance for that matter. Most disturbing of all, I found that the most commonsense approach to cost-cutting used by all of us on a daily basis was not legally available to Philadelphia drivers. That commonsense approach, we believe -- and others may not agree with us, but we believe is to price auto insurance like we price almost every other commodity or service in our lives: Pay as you go; the more you drive, the more you pay for insurance; the less you drive, the less you pay. This idea made enough sense to the good people of Texas who, a few months ago, became the first state to permit drivers to purchase auto insurance coverage by the mile. And since our insurance rates are regulated by the State, I have discussed this issue with a number of our State legislators. Philadelphia cannot regulate auto insurance or auto rates, but we thought it would be a good idea to begin here in Philadelphia with this 7 5/14/02 LAW & GOV'T - RES. 020174 hearing so that we can develop a portfolio to submit to the State and give them a basis to look at this idea. And then I asked my State Senator, Shirley Kitchen, who is very active and concerned about this, to join us today; and I also have invited State Representative Ronald Waters, who called me and expressed an interest in this legislation. The Chair will recognize Senator Kitchen, and we hope that Ronald Waters will be here shortly; we told him 10:30, so he should be here soon. I am proud to note that as proactive legislators, they were both open to participating in this hearing to gain the information needed to take action on this issue at the State level. We are pleased, Senator Kitchen, that you are here with us and to join with the Committee on Law and Government to investigate this issue. We know it's not going to be easy in Harrisburg; it's hard to generate interest in a new idea. But once the discussion and the debate takes place, people begin to open their eyes to a better way, or a new way, of doing business.

And we hope that our state legislature will take the time to really investigate 8 5/14/02 LAW & GOV'T - RES. 020174 an alternative to the way we charge for insurance in this state. In addition, I'm also pleased to note that the national expert on mile-based auto insurance and the architect of the Texas legislation, Patrick Butler, is here today to present testimony on behalf of the National Organization for Women's Insurance Project. We have also written testimony from the Honorable Jose Montemayor, who is the Texas Commissioner of Insurance; and the honorable Ruth McClendon, who is a former Councilmember from San Antonio, Texas -- and I know her personally, and we also belong to the 100 Black Women Together. She's the State Representative who sponsored the mile-based legislation in Texas. I am also pleased to see representatives of consumer, environmental, senior citizens' and women's groups here to offer their comments on this proposal. I look forward to exploring this vital topic with you today and creating an unstoppable movement to change Pennsylvania's insurance laws and regulation so that Philadelphia drivers can at least 9 5/14/02 LAW & GOV'T - RES. 020174 find a way to afford auto insurance and comply with our state's mandatory insurance laws. I am not under the allusion that this is going to happen overnight; I see a long discussion, a long debate, a long fight. We may be successful, maybe not, but we can't be blamed for not raising the issue. And I hope that the people of Philadelphia will go to their legislators and talk to them about this important idea. I pledge to work with Senator Waters and Senator Kitchen and the other legislators across this state, particularly those from this city, to do everything we can to make sure that this commonsense approach to auto insurance can be offered to Pennsylvania drivers. Thank you very much.

Thank you very much, Councilwoman Tasco. Senator Kitchen, the committee would be delighted if you would desire to share your opinions with us. STATE SENATOR KITCHEN: Good morning, Mr. Chairman and good morning to the entire committee. I'm pleased to be here to be a part of 10 5/14/02 LAW & GOV'T - RES. 020174 these important hearings. This program, Live Stop, will, no doubt, affect people, especially poor people, poor, working people in a way that probably no legislation has recently. But yet, it is necessary for everyone to be insured. Not only is it the law, but people are jeopardizing their future by getting into tons of debt because they don't have insurance and are not able to pay for some of the damages that they accidentally commit. We are pleased to say that we intend to be a part of it. I am truly glad that Councilwoman Tasco asked the legislature to be a part of it through me, and together with Representative Ron Waters, together we can bring this to the legislature. We will keep it out front, and we know that if we continue to work together and pound on this issue, some relief will have to come forward. So thank you again, Councilwoman, for thinking of the people of Philadelphia and -- as well as the other people across the State who is having problems paying its insurance rates, and especially here in Philadelphia, where it is extremely high. Thank you, committee. 11 5/14/02 LAW & GOV'T - RES. 020174

Thank you very much, Senator Kitchen. The Chair's known Senator Kitchen for a long time, and we're glad to note for the record the upward movement of her political position. It's hard sometimes to keep up with her. Thank you very much, Senator Kitchen. STATE SENATOR KITCHEN: I can't keep up with you; I'm trying to get some new shoes. (Laughter.)

The Chair notes the presence of Councilman Angel Ortiz, a member of this committee present now. He's to my right, and that's where he belongs politically. (Laughter.)

Councilwoman Tasco referred to several folks from Texas who could not be here in person but they've submitted very important testimony. I'm going to ask the clerk of the committee, Mr. Kearney, to read into the record the testimony of the Honorable Ruth McClendon, the State Representative referred to by Councilwoman Tasco before from the Texas House of Representatives, and thereafter, the testimony of the Insurance 12 5/14/02 LAW & GOV'T - RES. 020174 Commissioner for the state of Texas, Jose Montemayor. Mr. Kearney, would you proceed first with the statement by the Honorable Ruth McClendon.

"To Councilwoman Tasco and members of the City Council Committee on Law and Government: "I am pleased that you are interested in the concept of per-mile automobile insurance. I would like to share with you my experience with the legislation that authorized the concept in Texas. "House Bill 45, the per-mile auto insurance bill that I sponsored last legislative session, gives the option to all insurance companies in Texas to offer auto insurance on a per-mile basis. "Traditionally, auto insurance has been sold on a time basis. A car is insured for a month, six months, a year at a time. These traditional plans assume that a certain average number of miles are being driven over the period of time insured. "There are certain groups of people who drive significantly less than the average number of miles assumed for a traditional policy. These people will benefit the most from this kind of policy. Elderly persons may drive less than 5,000 miles per 13 5/14/02 LAW & GOV'T - RES. 020174 year. I'm told that women, as a group, drive one-third less than men as a group. Many families have an extra vehicle that they drive infrequently. Some have specialized vehicles such as RVs that drive only once or twice a year. "If automobile insurance could be purchased in relation to the actual miles on a vehicle, elderly and lower-income people could reduce their insurance premiums by controlling the amount of driving they do, and others could benefit when they insurance vehicles that aren't driven very much. "Twenty percent of Texas motorists are uninsured. Affordability is one major factor contributing to this. Lower insurance rates could reduce the number of uninsured motorists. "Per-mile automobile insurance has been offered on a pilot basis in Texas by Progressive Insurance Company, with savings of over percent. 20 They are now evaluating their pilot program, are 21 making some adjustments, and hope to have a policy 22 out in the next year or so. 23 "We are the first state in this country 24 to do this. It will take a while for insurance 25 companies and regulators to figure out how they want 14 5/14/02 LAW & GOV'T - RES. 020174 to proceed. I have tried to encourage the development of this market by first giving the concept clear legal legitimacy, setting up a framework with the State Insurance Commission and spreading publicity about it. During the legislative session, this proposal struck a nerve with many Texans, who have been wanting something like this for a long time. "The bill took effect in June, as soon as the Governor signed it because it got enough votes in the legislature to give it immediate effect. However, the bill gave the Insurance Commission until the end of December to come out with their detailed regulations. Those regulations are available now if you would like to see them. "The bill is not mandatory, and insurance companies will decide for themselves whether to enter the market or not. The main questions will be whether they can sell many of these policies and whether make any money with them. "If you would like any additional information, please contact my staff at area code (210)225-2107, and we will be happy to assist you. "Sincerely, Ruth J. McClendon, State 15 5/14/02 LAW & GOV'T - RES. 020174 Representative."

Now would you read the letter from the Insurance Commission.

Written statement of Jose Montemayor, Texas Commissioner of Insurance to the City Council of Philadelphia: "Thank you for providing me with an opportunity to provide testimony regarding mile-based rating plans for automobile insurance and House Bill, enacted by the 77th Texas legislature. I regret that I am unable to attend your meeting today on this important issue. "The Texas legislature and Governor Rick Perry responded to the desires of the people last year by passing legislation authorizing insurers to offer mile-based rating plans for automobile insurance. "House Bill 45 defines 'mile-based rating plan' as a rating plan for which a unit of exposure is one mile traveled by the insured motor vehicle. The legislation created a pilot program that will end on September 1, 2005, but can be extended if the Texas legislature decides that the program is working well. 16 5/14/02 LAW & GOV'T - RES. 020174 "Representative Ruth Jones McClendon of San Antonio and Senator Eliot Shapleigh of El Paso authored and sponsored the legislation. "We at the Texas Department of Insurance responded both to the desires of the people and the directives of the legislature and governor by adopting rules setting out the details of how the system will work. As Commissioner of Insurance on January 23, 2002, I proudly approved the rules to implement the legislation. "According to the National Organization for Women, NOW, Texas is the first state to approve the plan for private-passenger automobiles. Proponents of the plan, including NOW, say older drivers, women, lower-income drivers, households with more cars than drivers, and commuters will all benefit from this new insurance policy. "I count myself among the proponents too. I believe that the plan may not only lower auto insurance rates but also reduce the number of uninsured drivers on the road in Texas. "As I said in January, upon approving the new rules, 'Anything that may lower auto insurance rates as well as make a dent in the number of 17 5/14/02 LAW & GOV'T - RES. ' "Unfortunately, we are still waiting for the auto insurance industry to recognize the potential for mile-based auto insurance rating plans. I am hopeful that sometime soon, an insurer is going to take the initiative and implement a mileage rating plan and that positive reaction of Texas policyholders will encourage other insurers to quickly follow suit. "The rules I approved allow drivers to purchase a certain number of miles, depending on how many miles they typically drive. Insurers may audit the mileage until the expiration date of the policy. Drivers could purchase additional mileage during the policy term for additional premium. A driver may also get a refund of credit applied to the new policy for any unused mileage, depending on how an insurer structures its program. Any mile-based rating program offered to consumers would require the Commission's approval. I look forward to the day when I can give the approval for the first time. "I am pleased and proud that Texas is on 18 5/14/02 LAW & GOV'T - RES. 020174 the cutting edge of this concept. I'm sure other states will be watching to see what happens in Texas and in Philadelphia. "Calls, e-mails, and letters to the TDI indicate many consumers are enthusiastic about the ideas. I hope they also are letting the insurance companies know of their interest. "Insurance companies are businesses, and businesses must respond to the desires of their customers if they want to keep those customers. I am sure that it's just a matter of time until the interest of insurers in mile-based rating plans catches up to the interest of consumers. "Thanks again for inviting me to comment on this important issue. " The letter is not dated, and the letter from Ruth McClendon that I read earlier is also not dated. They came yesterday.

They came very close since they refer to the meeting today. Thank you very much, Mr. Kearney. We're now going to -- the Chair announces 19 5/14/02 LAW & GOV'T - RES. 020174 that Councilman Michael Nutter and Councilman Frank Rizzo, one to my left, one to my right -- I'm surrounded -- have both entered the hearing, and they're coming to hear the witnesses. And I want to call the first set of live witnesses today. In Panel 1, we would ask these people, when I name them, to approach that table, and each of them will speak. The first one will be Patrick Butler, who's the Insurance Project Director for the National Organization for Women. Then Kathy Miller, President of the Pennsylvania Chapter of NOW. She's here, good. Pedro Rodriguez, President of the Action Alliance of Senior Citizens of Greater Philadelphia.

Mr. Chairman?

Yes.

Mr. Rodriguez just informed the office that he is stuck in Baltimore on Amtrak, and he hasn't been able to get out of Baltimore. So he's on his way. I don't know if he'll make it before we finish.

Okay.

But he is for the 20 5/14/02 LAW & GOV'T - RES. 020174 legislation.

Okay. Jacob Gray, Representative of the Resources for Human Development, Conservation Law Foundation. Michael Replogle, Transportation Director of Environmental Defense. And Dennis Winters, Transportation Program Manager of the Clean Air Council. Those two -- I see. I understand that two members of the panel have submitted their testimony, which will become a part of the record of this hearing, but we're very glad Mr. Butler and Kathy Miller are here. Mr. Butler, why don't you proceed with your testimony. And first identify yourself for the record. And you'll have to speak directly into the microphone. This is the courtroom that we're using for Council session since we got flooded out. That's the official story; probably we didn't pay our rent for the use of the Council chambers.

Mr. Councilman, could we have Kathy Miller -- she's the President of 21 5/14/02 LAW & GOV'T - RES. 020174 Pennsylvania Now, and it's under her auspices that I'm here. So protocol would say that she would give the introductory remarks.

Very good. Thank you, Kathy Miller. We're delighted you're here.

Yes, I'm Kathy Miller. I'm the current president of Pennsylvania NOW, and I appreciate the opportunity to speak to you here this morning. I want to thank Councilwoman Tasco for raising the issue of the cents-for-mile and introducing this resolution, and I join her in encouraging City Council to explore this idea fully. I think that if you take a serious look at the idea, you will agree that it can be implemented with little difficulty and would greatly benefit not only the people of Philadelphia but the people of Pennsylvania. While cents-per-mile is not a new idea to the Pennsylvania Chapter of the National Organization for Women, it is possibly an idea whose time has come. NOW and Pennsylvania NOW have worked on this issue for many years. I was thinking it was the early '90s; Pat tells me it was the early '80s in 22 5/14/02 LAW & GOV'T - RES. 020174 which we first made a pass at trying to introduce legislation in Pennsylvania based on this concept. We've learned a great deal in the interim and have done a great deal of study. We have long been aware that women and other low-mileage drivers have been the victim of unequal pricing for car insurance. Although women drive -- women's driving patterns are changing, and have changed since the early '80s, women still drive on the average at least half the miles that men drive, which means that they are still paying on the average twice as much per mile for car insurance for the same protection. The cents-per mile insurance would offer women, older people, low-income groups, and other low-mileage drivers a way to control the cost of operating a car. It would mean that low-mileage drivers would not be subsidizing the costs and the risks of high mileage drivers. Pat Butler has worked on this issue for NOW for many years. The past president of Pennsylvania NOW worked closely with him in our campaign to gain equitable car insurance in Pennsylvania. 23 5/14/02 LAW & GOV'T - RES. 020174 I encourage you seriously to take the information he has gathered, which shows that this is not the complicated, impossible task that insurance companies would like us to believe, but a workable, equitable system, which would mean that low-mileage drivers could afford insurance, thus reducing the risk to all of us. Thank you very much.

Thank you, Miss Miller. The Chair wants to note the presence of Representative Ron Waters, who has joined the committee at the table, and we welcome you; and the presence of Estelle Richman, the Managing Director for the City of Philadelphia, clearly here to obtain information for the Insurance Task Force. We welcome her presence in all matters. And I see you're scheduled later to testify. I tell you because we know your time is tied up, if you would like to join the panel, we'll hear you right after Mr. Butler.

If you don't mind, Mr. Butler, why don't we let her testify -- she's our managing director -- because I'm sure there will be a 24 5/14/02 LAW & GOV'T - RES. 020174 lot of questions of you. Do you mind, Mr. Chair?

No, not at all. I think it's a great idea.

And then we can spend more time with you and not rush you, all of you. Okay. (Witness comes forward.) MANAGING DIRECTOR RICHMAN: Thank you. I apologize for being in a rush. We just finished dedicating our new Medic Unit at the Airport, and I've rushed from there to here, and then I have a meeting with the Mayor at 11. Thank you. My name is Estelle Richman, and I'm the Managing Director of the City of Philadelphia, and I am here to testify as to the impact that the implementation of the Live Stop Program may have on the City of Philadelphia and possibly insurance rates. Act No. 1996-93, also known as "the Empowerment Law," became effective in October 1996. As you are aware, the law authorizes law enforcement officers to immobilize the vehicle of any individual found to be driving without the proper operating 25 5/14/02 LAW & GOV'T - RES. 020174 privileges or registration. Furthermore, this law empowers the Philadelphia Traffic Court of the First Judicial District of Pennsylvania to tow and store these vehicles via an appropriate towing and storing agent. In June of 1998, then-Mayor Ed Rendell and the First Judicial District of Pennsylvania appointed the Philadelphia Parking Authority to pilot an impoundment initiative. This initiative, better known as the "Live Stop Program," has successfully been in effect in the 3rd, 4th, 6th, 25th Districts, as well as the major highways through the City since that time. In keeping with the Mayor's commitment to enhance public safety and quality of life for all of Philadelphia's communities, we will be extending the Live Stop Program citywide on July 1, 2002. In preparation for the citywide implementation, the City has established the Live Stop Information Office, located in Room 115 of City Hall. The office has been established to assist drivers with a suspended or revoked license or registration to prepare them for their Traffic Court hearings. 5/14/02 LAW & GOV'T - RES. 020174 As of yesterday, our Ombudsman Office had seen approximately 2,000 people, had had approximately 2,000 phone calls, and had also seen probably just about as many people seeking advice about their driver's license and car registration and how to approach Traffic Court. Although the Live Stop Program applies directly to persons operating a vehicle without a proper driver's license or registration, the citywide expansion of the program can be expected to have a synergistic impact not only on safety but also on the number of uninsured drivers on the streets of Philadelphia, as the current Live Stop program already shown that the majority of persons stopped by the police found to be operating without a license or registration also lacked proper insurance. Hence, this program could significantly reduce, or could reduce, the number of up insured drivers operating in Philadelphia. Consequently, a citywide Live Stop Program could be a major step in improving both traffic safety, which is our primary goal, and, equally important, be the first step in beginning to let insurance folks in Philadelphia know that we are 27 5/14/02 LAW & GOV'T - RES. 020174 very, very concerned and conscious about our insurance rates. The Live Stop Program is a major step in our City's effort to reduce the dangerousness on our highways and, consequently, get safer roads. It is proof-positive that the City understands that driving is a privilege and is willing to do its part by the observance and enforcement of the law to ensure that that privilege is exercised safely and responsibly. I will also be willing now to take additional questions.

Thank you. Any questions for the Managing Director? Have you had an opportunity, Managing Director, to study the proposals that we're discussing today about insurance by the mile? MANAGING DIRECTOR RICHMAN: Not thoroughly. I have had some information on it, and we are currently examining it, and some of it is included in some of the other testimony that I have, but since I haven't had a chance to thoroughly review it, I didn't want to get into a question-and-answer session on that as of yet.

The City would support 28 5/14/02 LAW & GOV'T - RES. 020174 activity that would lead to the diminishing the uninsured drivers? MANAGING DIRECTOR RICHMAN: We would like to see the number of uninsured drivers in the City decrease, and the Mayor has appointed a task force to look into this issue, and we will do anything that we can to support that task force's position.

Thank you. Any other questions of the Managing Director? Councilman Ortiz.

Wasn't there a report already done? I think the task force was set up, and someone named Susan Shulman was the executor, or the director, and they already had a report. And is that report available? MANAGING DIRECTOR RICHMAN: I'm not familiar with that, Councilman. I can research that for you, but I have not been involved in that since my tenure as Managing Director.

But I know that there was this mayoral Insurance Task Force, and if that report is -- because I've been told that that report has been completed, and I'm sure that this committee 29 5/14/02 LAW & GOV'T - RES. 020174 would like to have that report made available to us so that we can give it consideration as we debate the issue of insurance by the mile.

Councilman Ortiz, I understand that Councilman Clarke is a member of the task force -- as chairman of the task force has something to say on this issue. Councilman Clarke.

Thank you, Mr. Chairman. Councilman Ortiz, I just wanted to say that the task force and the membership has been reconstituted; that's why there was some delay in the distribution of information. There have been new appointments to that commission, there are a couple of more that need to be filled. We are now being staffed by Mr. Romulo Diaz from the City Solicitor's Office. I will personally make available to every member of this committee and to every member of Council a copy of that task force report. Since that report, there has actually been additional information, and I will add that as amendment to that report and make that available to 30 5/14/02 LAW & GOV'T - RES. 020174 every this committee and its chair.

Well, that's very good. Thank you.

You're welcome.

Perhaps it would be a very good idea if, as sponsor of this resolution, were added to the task force, if she's not already on it, Councilwoman Tasco. Senator Kitchen? STATE SENATOR KITCHEN: I have a question. I have not seen the legislation, but my assistant had an incident involving a young woman and two children, and should the police have been called and Live Stop would have been in effect, I'm assuming, under this legislation, her car would have been confiscated, but this woman had two children, and it was also sort of dreary and sort of cold. So what happens if a car is confiscated and it's children involved, or maybe even groceries, food or whatever? MANAGING DIRECTOR RICHMAN: Councilman Clarke asked me this question yesterday, as a matter of fact, and we are looking to, one, begin to look at the times we're going to have them operational; in 31 5/14/02 LAW & GOV'T - RES. 020174 other words, I'm not sure that at this point, we will have people operating overnight, which would present a problem. Otherwise, the basic rule -- and we'll be working in detail with the police around this. As people, particularly women with children, any age, would be dropped at a safe place, inside, that has a phone, that they can remain until they can be assured of being picked up. I hadn't addressed the issues of perishables being in the car, but that's a good point, and we will look to make sure that for any articles they have that would be at risk or in some ways could be affected by being impounded, which would be groceries, or it could be any number of things, that we take that into consideration as we go down to that level of planning. But our first concern would be that people be in a safe place, indoors, where they and their children be safe and where there's a working telephone so that they could call for help, and to not leave them abandoned or on the side of a street; that would not be looking to their safety. The complications to that, as I believe 32 5/14/02 LAW & GOV'T - RES. 020174 was pointed out, was that if it's at night or o'clock or o'clock in the morning -- and I think, given those parameters, at least at this point in time, that we need to determine whether or not we operate hours a day or whether we aren't that 7 tight at the wee hours of the morning or in generally 8 unsafe times. 9 But we do not want to put anybody at risk 10 or in danger. 11 STATE SENATOR KITCHEN: Thank you. 12

Any other questions? 13 Councilwoman Tasco? 14

I don't have a 15 question yet. I will probably ask some questions of 16 the people who are dealing with insurance. 17 But I noticed that you did not read all 18 of your testimony; it will be entered into the 19 record, as presented, all right? 20 MANAGING DIRECTOR RICHMAN: Okay. 21

So I think the 22 serious -- and Councilman Clarke is sitting here. A 23 serious discussion has to take place about how we 24 help individuals, just for this same reason, and I think the Live Stop was an action to deal with people 33 5/14/02 LAW & GOV'T - RES. 020174 who were uninsured, without too much thought to different problems that one might encounter. So I certainly hope that the City will be supportive of not only this but any other measures to lower the cost of insurance in the state. And we know the insurance lobby is very powerful, but our role, as elected officials and appointed officials, is to look out for the concern of the consumer and the people who we representative. So I hope the administration will be supportive if this issue comes up in the State Legislature. MANAGING DIRECTOR RICHMAN: The Administration, particularly the Mayor, is very concerned about insurance rates and making sure that we don't put anyone unnecessarily at risk and that we do what we can, both as a city and as a administration, to support the task force and to work with the State around these issues. I felt I couldn't go through the entire testimony unless I was prepared to answer your questions. And since I don't -- I think the Law Department and other folks here would be much more in a position to answer some of your more detailed 34 5/14/02 LAW & GOV'T - RES. 020174 questions. But we are certainly committed to working with the task force and working with the State around these issues to make sure that Philadelphia, one, is not unduly burdened or targeted as an area, and that we can work to have as many of our people as possible insured with licenses and with car registrations.

Thank you.

Councilman Clarke, may I ask you a question? Who does the appointing to the City's task force; is it the Mayor or the Managing Director? Is there an appointing authority?

The Mayor. MANAGING DIRECTOR RICHMAN: Just the Mayor.

'Cause I think it would be very good if Councilwoman Tasco, if she's not already a member of the task force, become one so there could be lively debates on how to protect people's rights at the same time. I know of no law that requires people to be subjected to all kinds of hardships if they're stopped and it's shown that they don't have car 35 5/14/02 LAW & GOV'T - RES. 020174 insurance or the car is not properly registered or they're not licensed. I think there are many instances in which the police have shown excellent judgment by taking children home or, where possible, so that the fears of the parents are allayed and safety is provided for everyone. I think issues like that are very much a part of the problem of the task force. We all believe there ought to be fewer uninsured drivers and people ought to have -- for the protection of the general public, they ought to be protected by knowing that if there is an accident, there will be monetary damages available to them if they can prove their case. MANAGING DIRECTOR RICHMAN: Okay. Let me just clarify for the record, the Live Stop Program, when someone is stopped for a traffic infraction -- in other words, they've run a red light or a stop sign, but there's a traffic infraction that has already occurred, that the police will only take their car if they don't have a driver's license or if they don't have registration. They will not be asking for car insurance; they will not be asking if they have car 36 5/14/02 LAW & GOV'T - RES. 020174 insurance. So the only two pieces that they will be requesting, once a car has been stopped for a traffic violation, is a -- is to see their license or to track their license on a car computer or a car registration. They will not be asking for proof of insurance at a car stop.

Councilman Nutter?

Madam Managing Director, are you saying that there's a new directive out to our police department with regard to how to conduct a car stop? MANAGING DIRECTOR RICHMAN: No. The Live Stop Program, when a car -- the way the Live Stop Program will work -- and I'm only talking about Live Stop Program. The way the Live Stop Program works, if you're stopped for a traffic infraction -- and we're not going out and looking.

I understand. MANAGING DIRECTOR RICHMAN: We will ask to see your license.

Right. MANAGING DIRECTOR RICHMAN: They will ask to see your car registration, which they do now. 37 5/14/02 LAW & GOV'T - RES. 020174

Well, I understand that, okay. MANAGING DIRECTOR RICHMAN: If you don't have a valid car registration or a valid license, your car then will be -- they will take possession of your car.

I understand. My question was: Is there a new directive out about that? Just as a regular motorist, I mean, my general experience is that the officer in any car stop, pre-Live Stop, after Live Stop -- I mean, I don't know what that situation is going to be but, I mean, I've been driving for a while. MANAGING DIRECTOR RICHMAN: Right.

The standard request is: License, registration, auto insurance. MANAGING DIRECTOR RICHMAN: Okay.

I mean, that's what they ask for all the time. So are you saying here today that there's a new directive to not ask for auto insurance? MANAGING DIRECTOR RICHMAN: If you don't have auto insurance -- if you have car registration 38 5/14/02 LAW & GOV'T - RES. 020174 and a license but no auto insurance, we will not tow your car.

You're saying you're not going to keep the car? MANAGING DIRECTOR RICHMAN: That's right.

Okay, but I'm just trying to be clear. MANAGING DIRECTOR RICHMAN: Yes, I'm sorry. You're correct.

Your earlier statement was: We will not ask for auto insurance. MANAGING DIRECTOR RICHMAN: No, we --

What I'm saying is -- MANAGING DIRECTOR RICHMAN: We will not tow your car if your don't have auto insurance.

The general experience on the street is three pieces of information. MANAGING DIRECTOR RICHMAN: Three pieces, right.

You're saying that even if they ask for the auto insurance and even if you can't produce the auto insurance, if you have a current license and a current registration, that will 39 5/14/02 LAW & GOV'T - RES. 020174 not make you subject to the provisions of Live Stop. MANAGING DIRECTOR RICHMAN: That's correct.

You more than likely will get a ticket for driving without insurance. MANAGING DIRECTOR RICHMAN: Right, you'll get a ticket, but your car will not be in danger of being towed.

All right. I just wanted to make sure. MANAGING DIRECTOR RICHMAN: I'm sorry.

Because I've been a participant in a few car stops, so have a little experience on that subject. MANAGING DIRECTOR RICHMAN: Yes.

I did have all my stuff together. MANAGING DIRECTOR RICHMAN: And we do have computers in cars, so if you happen to be driving without the other two in your possession, we will not tow your car either.

Let me just ask from a -- I don't know whether it's a --

(Inaudible/off mic.) 40 5/14/02 LAW & GOV'T - RES. 020174

I'm sorry?

Point of information.

Sure, yeah.

The Chair recognizes Councilman Rizzo.

Thank you, Mr. Chairman.

Just for a point of information.

I just want to make sure -- and it was a good point that the Councilman made, Councilman Nutter. If you only have one of those documents -- let's say that you don't have a license, and they run it in the computer, and you have a suspended license, they take the car. MANAGING DIRECTOR RICHMAN: That's correct.

They run it, and you don't have a valid administration, they take the car. MANAGING DIRECTOR RICHMAN: Right.

It can be one of those two things. MANAGING DIRECTOR RICHMAN: Right. 41 5/14/02 LAW & GOV'T - RES. 020174

No insurance, we're going to operate under the current rules of the Police Department for a person who doesn't have insurance; they'll issue 'em a ticket. MANAGING DIRECTOR RICHMAN: They'll issue 'em a ticket, that's correct.

What's the ramification of the ticket? I know that that's getting very deep into the Police Department now and you might not be able to --

Councilman Rizzo, could you hold that? because your point of question was answered. You can go back later and pursue it further.

Thank you.

The Chair recognizes Councilwoman Tasco.

I just wanted to kind of clarify things. If you don't have insurance, you don't have a registration; you don't get a registration unless you have insurance. MANAGING DIRECTOR RICHMAN: But you can get insurance that's 30 days. 42 5/14/02 LAW & GOV'T - RES. 020174 So that you get your car registration, you show your insurance. Your insurance expires, your car registration can still be active.

Representative Waters. STATE REPRESENTATIVE WATERS: Yes. Thank you, Mr. Chairman. Thank you, Managing Director. When a car is impounded, it traditionally has been taken to the impoundment lot that the Parking Authority runs. And when a person comes back to get their vehicle, what will they need? Will they need to have any proof of insurance to retrieve their vehicle from the impoundment lot? MANAGING DIRECTOR RICHMAN: I'm not sure I can answer that without going back and making sure that the information I have is accurate. I'm sorry. I can get back to you but I'm not sure I know that level of detail. STATE REPRESENTATIVE WATERS: It seems that that would probably be the best way to release a car for someone to be able drive properly, then once a car has been taken for other lack of proper identification, that everything should be intact before it's turned back over to that person. 43 5/14/02 LAW & GOV'T - RES. 020174 MANAGING DIRECTOR RICHMAN: If what was missing was car registration, then they do have to have insurance to get car registration. If what was wrong was a license, a driver's license, I'm not sure, that's what I'm not sure about. But you have a valid car registration. REPRESENTATIVE WALTERS: Yes, you have -- MANAGING DIRECTOR RICHMAN: You have a valid car registration at the time you got your car registration, so your car registration is clean. STATE REPRESENTATIVE WATERS: Yes. MANAGING DIRECTOR RICHMAN: And what you had was a suspended license and your license suspension has now been cleaned up, I don't know whether or not they go back and say you have to have insurance. I would have to go back and check that for you. STATE REPRESENTATIVE WATERS: Well, what happens is, they will allow someone else to pick up your car that has a driver's license too; it doesn't necessarily have to be the person who owns the car. You get the car back, someone has to be licensed to pick it up, but it don't necessarily have 44 5/14/02 LAW & GOV'T - RES. 020174 to be the person who owns the car. MANAGING DIRECTOR RICHMAN: The person who owns the car has to be able to pick the car up; the person who drives the car has to have a car registration. STATE REPRESENTATIVE WATERS: Right. MANAGING DIRECTOR RICHMAN: So that if it's your car -- STATE REPRESENTATIVE WATERS: I could take Councilman Nutter down there. MANAGING DIRECTOR RICHMAN: Councilman Nutter cannot pick up your car without showing that he has the car registration for that vehicle. STATE REPRESENTATIVE WATERS: Yes, ma'am. Yes, ma'am. MANAGING DIRECTOR RICHMAN: So he has to have that, and that to have that car registration valid you have to have insurance. STATE REPRESENTATIVE WATERS: Okay, that's my question. Thank you. MANAGING DIRECTOR RICHMAN: But if it's Michael Nutter's car and he doesn't have a driver's license, he may not be able to drive that car; he may need to bring Councilman Clarke with him, who has a 45 5/14/02 LAW & GOV'T - RES. 020174 valid license to drive the car. But the car would only be released to Councilman Nutter if it's his car. We can get everybody involved in this if you want. STATE REPRESENTATIVE WATERS: Thank you, good enough.

Councilman Rizzo? You're recognized to pursue the...

I believe that that is the process. Currently, if your car is booted and towed, to get it back, you have to have all of the credentials in order to be able to recover your vehicle. My concern is -- and there's a lot of criticism and confusion about the fact of why we left the insurance piece out of this Live Stop Program. Why, if a person's stop and they don't have insurance, we're overlooking that very important fact. And I understand possibly why, but I'm just -- it seems like it's such a good program, and we've left some critical component out. What we're trying to do is prevent people from driving without 46 5/14/02 LAW & GOV'T - RES. 020174 insurance. And a police officer stops a car, doesn't have a license, doesn't have a driver's license, we take the car. They get stopped, they don't have insurance, they're issued a ticket and able to proceed. Something's not right with this story, but I can live with it if it's the first step, but I would love to see someday if a person is stopped, that -- I can't imagine how this is going to help with our insurance -- with the crisis that we're having with the cost of insurance if we're going to permit people just to drive off. And I ask the question, what is the process? And maybe we do need someone -- and I can't expect you, the Managing Director, to know this detail; I don't know it and I'm a Councilman. What happens when we issue that ticket to a person that isn't insured; do they just drive on and continue to drive without insurance? What happens other than a monetary fine, which they obviously don't have the money to pay for insurance, so they're probably not going to pay for the violation. 47 5/14/02 LAW & GOV'T - RES. 020174 So I don't understand, and I would like to understand better what happens when a person is stopped without insurance in the City of Philadelphia.

Before the Managing Director answers, I think Representative Waters has a question to add on to Councilman Rizzo's question. STATE REPRESENTATIVE WATERS: Yes. There's a point of reference. That was a real good question that he asked because I'm wondering, if there's two people in the car when the car is stopped and one has a driver's license and the other one who's operating the car does not have a driver's license, can the person with the license take over the vehicle? And if they can't do that, but then later on, obviously, the person can't produce the insurance that quickly because they have to go and take care of all of the paperwork. But now, they can't get the person with them who -- like, Michael Nutter can't get Darrell to drive his car now, but he's allowed to drive the car illegally or at least uninsured. That is -- I believe there is some legal ramifications for that too. 48 5/14/02 LAW & GOV'T - RES. 020174 As far as PennDOT is concerned, if you don't have a license, you going to turn your license plate back into PennDOT. So now you're allowed to drive the car without insurance, but you could have a licensed drive with you, but he's not allowed to take over the vehicle. MANAGING DIRECTOR RICHMAN: You're in a legal area, and that would be better answered by someone from the City Solicitor's Office rather than me trying to give you answers that make sense to me but may not be legally correct. STATE REPRESENTATIVE WATERS: This is all about fact-finding. Thank you.

Senator Kitchen. STATE SENATOR KITCHEN: When insurance lapses, the insurance company is obligated to notify PennDOT in Harrisburg, and the license or registration -- I'm not sure which -- is surrendered, has to be surrendered, so the insurance is the issue, because it's against the law -- if it expires, you are asked to surrender for X-number of months, and then you cannot get it back unless you do have insurance. MANAGING DIRECTOR RICHMAN: Then they 49 5/14/02 LAW & GOV'T - RES. 020174 would probably show up on the computer as not having a valid registration. STATE SENATOR KITCHEN: Right.

Councilman Nutter.

Thank you, Mr. Chairman. Madam Managing Director, the question -- the point of information that Councilman Rizzo asked was the next question that I was going to ask. As I had mentioned, I have been driving for a little while, and I guess I really didn't understand, given what I thought one of the goals of Live Stop was, which is to make sure that people have basically all of their paperwork in order, but I thought a secondary goal at least was to help, in theory, drive down the cost of insurance because we'd be able to show to the insurance industry that more people are registered because of the fear that their car would be impounded. Again, putting aside 3 o'clock in the morning or someone with their kids or a bagful of groceries, ice cream, and all of these other kinds of situations, I don't really understand why we would allow a person, even though their license is in 50 5/14/02 LAW & GOV'T - RES. 020174 order, which you get on a four-year renewal, their registration is in order, which is annual, but I understand that you can buy either annual insurance, six-month policies, or now I'm even hearing about a 30-day policy, which is quite interesting. Why would we let the person go who has no 8 insurance? That is, I thought, the most critical aspect of the fact that they are now a liability on the road, they are a danger potentially to me or to other drivers, they have no ability to cover whatever costs may be incurred by their potential accident or other damage that they may commit to property. So I don't really understand -- and it seems to me it undermines the goal of the whole program -- why you would let a person to drive just because they have a valid license and a valid registration. MANAGING DIRECTOR RICHMAN: My understanding is -- and, again, you're in a much more of a heavy law response -- is that Act 1996-93, the empowerment law, only gives us the authority to impound a car for the two reasons I gave you: No 24 valid car registration and no valid driver's license. It does not extend to insurance. 51 5/14/02 LAW & GOV'T - RES. 020174 So we're following the law at this point to be able to do those.

I understand. MANAGING DIRECTOR RICHMAN: And that's the impoundment law.

Okay, let's finish out the question that Councilman Rizzo asked. I think my recollection is, if you get a ticket for driving without insurance, ultimately, I guess, you either pay that ticket, or if you don't, I assume that PennDOT ultimately finds out about it and seeks to suspend your license; is that correct? MANAGING DIRECTOR RICHMAN: That would be my assumption, yes.

I mean, is it the license or they got the registration because the insurance is on the vehicle. MANAGING DIRECTOR RICHMAN: On the registration, right.

Does the City have any -- let me ask this question: Act 1996-93, is that for cities of the first class, or is that statewide? MANAGING DIRECTOR RICHMAN: I believe 52 5/14/02 LAW & GOV'T - RES. 020174 it's statewide, but I can't answer that.

Let me ask this question: Does the City have -- what is the City's position -- put aside what we're legally allowed to do by an act of the legislature. From a policy standpoint, what is the City's position with regard to allowing, or not allowing, people to continue driving once they are stopped for a valid car stop and they do not have insurance or cannot introduce a valid insurance certificate? MANAGING DIRECTOR RICHMAN: The City's position on whether or not people should be allowed to drive without adequate insurance? I mean, is it --

Without any insurance. MANAGING DIRECTOR RICHMAN: Well, I think that the City has to take the position that people should follow the law, which is, people should have a valid license, a valid car registration, and valid insurance. How we go about making those things possible, I think, is a different question in terms of how we begin to make sure we don't have an undue 53 5/14/02 LAW & GOV'T - RES. 020174 negative impact on any one part of our citizen or workforce. So that second -- the second half of the question is a little bit more complicated as to whether or not we feel people should follow the law.

Councilman Nutter, may the Chair interject?

Yes.

I think all of the questions on Live Stop indicate the wisdom of better communication between the Administration and the Council so that we would have answers to these questions, and it may very well indicate the need for a public hearing on that matter. But today's hearing wants to deal with the question of the uninsured driver.

Right.

And I would like to basically return to that point of emphasis. Would that be agreeable? I don't want to cut off --

No, Mr. Chairman, I appreciate that. On that point, I have one last and final question.

Go ahead. 54 5/14/02 LAW & GOV'T - RES. 020174

Thank you. The real question, Madam Managing Director, is: Does the City expect to pursue any amendment to Act 1996-93 which would allow for the impoundment of the vehicle if any one of the three items, including auto insurance, is not valid? MANAGING DIRECTOR RICHMAN: We have not begun a discussion of that as of yet.

Okay. Thank you, Mr. Chairman.

I think the Managing Director understands that this committee's concerned about all of Philadelphians. One major concern throughout has been that the impact of the Live Stop Program may affect disproportionately the minorities, the low-income workers, those that are confronted with the current inability to pay the insurance rates. So that that's the reason we're so concerned about the human aspects of the program, 'cause any policy has to impact fairly upon all elements and not just the lower income and the minorities. MANAGING DIRECTOR RICHMAN: And that's 55 5/14/02 LAW & GOV'T - RES. 020174 one of the reasons that we're watching this very carefully and collecting data and trying to find the impact and not move precipitously until we have a better feel.

All right, good. And I would just suggest that we find a way to better communication, or I expect there may be one or more resolutions calling for public hearings, because it's so important to people of Philadelphia at every level, those that feel endangered by the lack of insurance, and that should be everybody, 'cause you never know who is going to be the victim of an auto accident, as well as the people who just cannot afford the present exorbitant rates of insurance. Thank you very much, Madam Managing Director. We very much appreciate your making yourself available today. Could we go back to Mr. Butler.

Thank you, Mr. Chairman. Members of the Council, I'm Patrick Butler. I'm Director of the Insurance Project in the national office of the National Organization for Women. 56 5/14/02 LAW & GOV'T - RES. 020174 As you know, insurance is regulated at the state level, so that means that the national office provides me and whatever else we can spare as resources to the state chapters of the National Organization for Women. And I'm here on behalf of the Pennsylvania National Organization for Women, and Kathy Miller, the President, made her opening statement. I live outside of Washington, and I now work in Texas an awful lot, but in the 1960s, my family and I lived on North 33rd Street, and I was a teacher, professor of geology at the University of Pennsylvania, so I have fond memories of that time. I've been back in this building, on automobile insurance, in the Council chambers when the Pennsylvania House Committee on insurance was holding hearings during the middle '80s, and so we had a number of sessions on that. So what I've done is made an outline of my testimony. " We're talking about this as though it's a problem the people have. It's not a problem the people have; it's a problem for the insurance company to provide protection in a way that could be 57 5/14/02 LAW & GOV'T - RES. 020174 purchased in any part of Pennsylvania or any part of the United States by the way the price structure works, and that's characterized by the dollars-per-year problems, and what I'm here to provide is a cents-per-mile analysis of those problems and what they really entail. The first slide, or the first outline, is the background of our efforts on this. What has made me as a scientist, as a geologist, if you will, an expert on automobile insurance, there are a number of steps that have been taken primarily in Pennsylvania. We have done work in other states, but we did the most work in Pennsylvania through a lawsuit that was initiated in 1986, and it was taken by Pennsylvania NOW and six individuals who are less-than-average- mileage-driver women against their insurers, and these companies represented over half of the market in Pennsylvania 3,800,000 cars, and they included -- of course, they would have to -- State Farm, AllState, Nationwide, Liberty Mutual, and then a rating bureau called the Insurance Services Office. From that, the Pennsylvania NOW versus State Farm case, which was heard before the Insurance Commissioner, we developed nearly 3,000 pages of 58 5/14/02 LAW & GOV'T - RES. 020174 trial record and published that in three publications, which are available in reprint, but I'm not asking anyone to read them. The Journal of Insurance Regulation contains the information that we were able to elicit from actuaries from the companies under oath. They weren't lobbyists; they were professionals who have to say the truth when they are being cross-examined by the NOW attorney. We lost in that, we lost before the Insurance Commissioner. Because of what we would call a Catch-22, the Commissioner said that you have to provide insurance data on a per-pile basis in order to challenge whether the rates are overcharging lower-than-average-mileage drivers that are paying more than the average cents-per-mile cost for insurance than it costs the companies for their rate class. That's a Catch-22 because insurers refuse to use odometers. We use government statistics, and everything I say about women driving less than average as a group or older people driving or lower-income people driving less than average, is all due to government-produced statistics, and the accident statistics that go along with those groups 59 5/14/02 LAW & GOV'T - RES. 020174 by driver age and driver sex is how they're reported to PennDOT. All conform to those data.

So those are the things that we brought the challenge was that women that fewer miles and fewer accidents as a group; therefore, individually, people drive their own miles; therefore, the insurance was overcharging all individuals who were driving less than average for their rate class, and the fix was to measure the amount of driving on an individual basis. The Catch-22 that the Insurance Commissioner used was that you don't have any insurance on a per-mile basis, and it is a Catch-22 because the insurers don't use odometers. And so we lost on that. We went back to the legislature -- we had been doing legislative efforts before we brought the lawsuit -- and had a bill introduced in 1989 sponsored by Senator (indiscernible) from Allegheny County. We didn't develop enough information or support to get it out into a committee hearing. The bill was reintroduced in 1991, and a few more people were on the bill in the Senate, and then in 1993, the final time we had the bill 60 5/14/02 LAW & GOV'T - RES. 020174 introduced, I think it had seven in the Senate, including then-Senator Chaka Fattah from Philadelphia and Senator Reedman and so on. But it was across the State, representing insurance problems from Erie County and from Allegheny County, and so it wasn't entirely a Philadelphia concern. It dawned on us after this effort that legislators were bothered by different concerns. They, of course, represent all constituencies in the legislature, and so asked -- our concern was discrimination against women, and we really focused on that. We did look at the problems the legislators were concerned with in Pennsylvania but hadn't come up with any kind of solution for them. And it's the twin problems, if you will, of high rates, plus uninsured cars. And so we introduced -- before we made this analysis, we had introduced a bill in Texas, the predecessor bill to Representative McClendon's bill 22 that was heard in 1999 in the preceding legislature. And we used -- there were a dozen bills, including ours, on automobile insurance in some marathon hearings, 12-hour or more hearings before the 61 5/14/02 LAW & GOV'T - RES. 020174 insurance committee, on two days in 1999, and went home and said, Well how do we tie our cents-per-mile analysis to those bills? Well, I said, Why not, instead of writing a technical paper with law footnotes and so on, as we'd been used to publishing in the Journal of Insurance Legislation, I said, Let's listen to the tapes, transcribe the discussion that the committee hearing had, and integrate that with our discussion of the problems. " and that addresses a particular problem, and Texas counties are disposed to have the same insurance throughout the county, but the companies are allowed to segregate by zip code so they can redline people to a nonstandard company with higher rates that can pay 50 to 150 percent more than the regulated companies -- the State Farms and AllStates. What I've done and handed out to the committee is a copy of the Executive Summary, and it also has a table of contents. So if you want to read 62 5/14/02 LAW & GOV'T - RES. 020174 further on that. But that basically explains -- the Executive Summary explains the arguments that I will go through of how the insurance being charged as a time period or being charged at dollars-per-year rates actually forces the system to break down. And I'll go and develop that a little bit more in my testimony. But, you see, how I've made myself an expert is by studying things in a scientific way, but on the other hand, when I look backwards on what I really developed, it's that anybody from their own lifetime experience as a licensed driver and having to deal with insurance and the economics of using automobiles, and in particular, people who are in legislative positions who have not only their own experience, but the experience of their constituents that they know about.

What I'd like to do is encourage people to use their common sense to follow along with this analysis. In accordance with that, we do have resources on the bottom of Slide 1. Our Website, dedicated to this issue, will have information, as well as the publications that I've shown you. Those are all available. 63 5/14/02 LAW & GOV'T - RES. 020174 This morning what I'm going to do is go through six topics and the mechanics of how you would work cents-per-mile. And it's important to know some of the things that aren't immediately apparent. Some of the apparent things have been accepted, of course, here in its enforcement of insurance that I'll touch on is maybe not quite so apparent. Then the technical aspects, which are still common sense of how you measure risk. And it takes two measurements to measure risk: Individual exposure and group classification. And then insurers are studied ignorance, they're invincible ignorance when it comes in a legislative sense of discussing questions. On the other hand, when they have to argue a point, they use common sense. And that's basically all automobile insurance is, is common sense about miles and costs. So I'll quote a few of the things that they say. What the present system does in Topic 4 is provides perverse incentive. In other words, it is not only no incentive to drive less and to save accident costs, but it actually is a perverse incentive. And I'll explain that. I'll go into what needs to be done in the 64 5/14/02 LAW & GOV'T - RES. 020174 light of where we are in Texas. That's the challenge for us. And then, finally, the way we would get it done is through public participation. Right now, insurance is left to the legislature. I don't know if it's changed any in Harrisburg, but at least in Texas, it's -- something that the legislators do is work on insurance problems, with almost no public input, except to identify the problems that are being addressed. So there are no solutions being offered by the public; it's an entire legislative process. And so what I would say is, the situation where we're at is that the public is going to have to get involved; there are people who would be interested in doing that. So I'm going to try to explain things in such a way that one could explain it to the public. The first topic is cents-per-mile mechanics. One of the things that we developed at the time of the Pennsylvania legislature is how it would be done. And when we first introduced the bill, we just said -- it was a one-sentence bill. It says: "For driving coverages, the unit of exposure, 65 5/14/02 LAW & GOV'T - RES. " And, of course, the non-driving coverages are comprehensive, coverage of fire, hail, theft and so on. They would continue. The unit would be the car a year. What I'd like to do -- there often gets to be confusion about what is the unit by which cars are driven, and there's a simple test that anyone could perform for themselves, is to see what happens when they vary the number of things it does to the price. First of all, is insurance based on the driver year? We keep hearing about drivers being uninsured, but in fact, it's the cars that are insured. And one could make this test: Ask your agent, If I add a couple drivers to my car, does that make any difference to my premium? And as long as the drivers aren't in a different category -- they're not young drivers or something else -- it would change the classification of the car, no, you can add as many drivers as you want to the car, and this would encourage people to save insurance by sharing cars for one thing, because it doesn't make any difference how many drivers you have. So the unit of 66 5/14/02 LAW & GOV'T - RES. 020174 insurance is not driver year. Is it the car mile? The insurers like to talk about mileage and this and that and the other thing where they ask you to estimate whether you drive above or below 75 miles for a token discount. " No way. " No way. So there's no way that the miles work into the system.

Okay, well, what about a car a year? You have a person who owns two cars, and they sell one, what happens? Their premium gets cut in half, or almost in half, to lose the multi-car discount. So, basically the, car a year is the unit of insurance that the insurance is sold by now. You buy another car, your insurance goes up proportionately to the number of cars that are owned, give or take a multi-car discount. How a car mile works. Car mile, or vehicle mile, insurance has been a basis for insurance available to commercial vehicles from time 67 5/14/02 LAW & GOV'T - RES. 020174 immemorial, I'm sure back into the 1920s, because it's a reasonable thing to do. And what happens in most commercial situations where there's a fleet of vehicles is if one of the vehicles breaks down or they sell a vehicle, they just take it off of the policy; or if they don't have a need for the vehicle, they call up the agent and the agent makes a notation at that time that that vehicle was, quote, withdrawn from service, and there's a certificate for that. And then add it back in the service when it's needed again. Well, that's a lot of paperwork. So some commercial people, having some buying power with the insurance industry, said, Well, could we just use all of the odometers? then we don't have to fool around with taking vehicles on and off the policy all the time. And, indeed, that is provided under a certain number of rules -- they won't do it for smaller fleets and so on. And it's one of the options that's written right into the rate manuals of companies is using a mileage base for the insurance. And it is done on electric utility pre-paid model, and what I mean by that is it's done like commercial general 68 5/14/02 LAW & GOV'T - RES. 020174 liability that may be a percent of gross receipts in the store that pay an estimated premium in advance and in installments. And then at the end of the year, there's a premium audit and a check on what the actual sales were; Worker's Compensation does that for checking on payroll, which is the exposure base for Worker's Compensation. Well, that would be a nightmare, as the insurers love to say if you did it for every private passenger automobile. It's not a house with an electric meter you can send somebody out to read; it's a car you've got to chase around or get 'em to come to the insurance agency. " And that's available. We looked at all sorts of aspects, odometer tampering, and I can (indiscernible) on that if anybody is interested about why there's better ways to rob money than stealing insurance protection by tampering with your odometer; it's a real loser 69 5/14/02 LAW & GOV'T - RES. 020174 for doing that. It actually is looking at questions like that in great detail, because it's a really simple concept. And we carried that on into Texas. The one change that we made in Texas to that way it would operate, we decided why not, instead of making everybody change their exposure unit to one-size- fits-all, let them compete, leave it up to the customer to decide whether they would go with the car year system or a cents-per-mile system. And so it's called a choice we have named the law to keep that in front of the people. It's choice to the customer always; it's now voluntary to the companies to offer it. The customer would be presented with a choice between, for example $500 a year, or 5 cents a mile, and could decide whether they were going to drive -- that would mean that if you drove less than 10,000 miles, you would save. Now, if someone -- if the average for your area were 15,000 miles, that would have to be adjusted, but the insurers take what they're charging cars in that group now and estimate, and they'll eventually know exactly what the average mileage for 70 5/14/02 LAW & GOV'T - RES. 020174 that group is and simply divide that $1,000 by 10,000 miles or 15,000 miles, and they would come up with a cents-per-mile rate, which would give the choice for the consumer at that time to decide.

All right, well --

Mr. Butler, may I ask this question?

Sure.

It seems to me that insurance companies will yell, as they always do, "If you do this, you're threatening us with bankruptcy." Is there any study which indicates what the economic impact would be on the insurance companies? Would they make money, would they lose money? It seems to me if they're convinced that they'll make money by a change -- and that may be possible because there will be many more insured drivers than there are now -- that they might well be for it. But if they're fearful that they're going to get less income, they'll be against it. Is there any study that relates to that kind of thing?

No, except that it's a 71 5/14/02 LAW & GOV'T - RES. 020174 matter of calculation, that if the average for a class is 10,000 miles and that's driven in cars that are driven from 2 to 20,000 miles, that everybody's paying the same average annual rate, but they're paying a lot different in the cents-per-mile right now. Collecting the same amount per mile will bring in the same revenue they were the year before, provided the same amount of driving is done. So they have the same number of accidents to cover if the same number of miles is done, and they have the same revenue coming in. One of the questions is, Well, what happens if they misestimate the annual miles? Well, there's no problem in my mind for putting a risk premium on the mile -- in other words, if the insurance is calculated that 5 cents a mile was their best estimate of the miles but they might have made a mistake or something else went wrong, they could charge 6 or 7 cents a mile and put a risk premium in. The advantage of the customer being able to comparison-shop, it makes the insurance more like a commodity, like gasoline, where it's standard, and the customers actually can compare-shop now by going 72 5/14/02 LAW & GOV'T - RES. 020174 from insurer to insurer. 5 cents. And the natural end point of that is getting down to real cost, and nobody can sell anything for under cost and stay in business for very long. But that's the advantage of the cents-per-mile: It tremendously empowers customers to comparison-shop and get the lowest per-mile cost. So the insurance companies certainly charge enough per mile, but if it's profiteering, then the customers can quickly check with the various other companies. Now it's very hard to shop for insurance. Well, to go on, if we could just go through a little scenario of somebody buying insurance, that I come in, and this would be unrealistically low for Philadelphia, but let's say that the insurance is $500 a year, and the company comes out and offers 5 cents a mile, and I come in and I say, Well, I'm driving less than 10,000 miles, 73 5/14/02 LAW & GOV'T - RES. 020174 therefore I'd like the cents a mile; how do I buy it? I'm talking to my agent. And the agent says, Well, how much can you afford? And I say, Well, I'll buy 2,000 miles for $100; that will take me quite a few months, and I know my own needs and my own budgeting, and I say, How does that work now? And he says, Well, what does your odometer read? And the first time I did it, there would be a check on the odometer -- some agents want to do this, by the way, or some other proof of odometer-reading. card that would show my policy period, which would be a standard six months, that's the contract period, and then it would show that car VIN number so-and-so is insured from 60 to 62,000 miles by State Farm AllState. And that would be it. I would have paid my insurance, and I would be cautioned that this car becomes uninsured if I drive beyond 62,000 on the odometer without having bought more miles. Now, one of the problems that gets alluded to is the 30-day policies now are issued with a showing of -- it's an installment plan, and the 74 5/14/02 LAW & GOV'T - RES. 020174 amount paid is not for six months but only for 30 days or 60 days usually, and then paid in 30-day installments. So what people do to cope with the system and get their cars inspected and registered is by the minimum down payment for the six months, and then lapse, don't pay any more, so the insurance is canalled for lack of payment on time. D. D. card because it's still within the policy period, but lapses because of failure to pay an installment on time. All one has to do is look at the miles on the car and check against the odometer to see if it's in the limit. And the Texas law is quite explicit that the insurance expires if you go over the miles driven, just the same way it expires if you don't pay your policy installment on time. D. card could immediately tell whether that car was still insured.

As long as we're on the question of enforcement, there are various proposals to check all 75 5/14/02 LAW & GOV'T - RES. 020174 the cars that are registered against all cars that are insured and for the companies to notify the authorities when somebody's policy lapses so they can compare a database to see if they bought another policy from another company. If they didn't, then the registration can be requested to be returned. If you -- if one does a mile system and it has that kind of database on it, then every year, when a car goes to get inspected, the person would not only -- would have to show a proof of insurance from their last annual mileage at the last inspection, even if they changed insurers once or twice, that they would show that they had a card that showed that that car had been insured from that -- for example, 60 to 75,000 miles it was driven between the two -- over the course of the year in order to get the inspection. And of course, then, what do you do if somebody can't do that? Well, there can be a fine for the missing miles; for example, double the cost of the miles that they would have if they could have bought it for 6 cents a mile, the fine could be 12 cents a mile, and that's it. So there are all sorts of things that 76 5/14/02 LAW & GOV'T - RES. 020174 legislators can do in an enforcement way to make sure that every single mile driven on the Commonwealth highways are insured.

Mr. Butler, may I ask you if you could summarize the remainder of your testimony. It's been very useful to us, but we want to make it possible for the other panel members to be heard.

All right.

We understand that there may be a lot of different techniques that are there, and I think what's important to us is --

Okay. I'm sorry to dwell on the mechanics of it, but sometimes that's thrown up by the insurance industry as, Oh, why we can't do it.

Well, I think you've convinced us that the mechanics are doable.

They're doable and we've written them down. All right. The question of risk classification, how you measure risk factors. This is Topic 2. Let's just for a minute question whether the drivers in Philadelphia are worst drivers or better drivers or no difference between those drivers 77 5/14/02 LAW & GOV'T - RES. 020174 that are in Adams County, the differential -- or Franklin, County. That's where Ghettysburg is, is Adams County. For example, a person buying minimum insurance in Adams County, it may cost them $200 a year, and the person buying the equivalent insurance in Philadelphia County is $1,000 a year, okay? So that's a five-times difference. Now, there are a lot of people in Adams County that have cars that aren't driven very much; the drivers may drive them a lot, or there are drivers that don't necessarily drive a lot either. So a car or a vehicle that's only driven 2,000 miles is not at all unusual in Adams County. So that means dividing $200 by 2,000 miles, means that that person has paid 10 cents a mile to insure their car in Adams County. In Philadelphia County, paying $1,000 a year and driving 20,000 miles, which, I think is probably a fairly average thing for the amount of driving that's done by people in the city, because insurance is expensive, so all the driving of a number of drivers is put on one car. If one divides $1,000 by 20,000 miles, that's 5 cents a mile. Well, what does all this talking about 78 5/14/02 LAW & GOV'T - RES. 020174 congestion and difficult driving conditions mean when cars or vehicles in rural areas are paying cents a 4 mile for identical insurance that cars in 5 Philadelphia are paying 5 cents a mile for? 6 So there's absolutely no credibility, 7 unless one measures -- refers, like engineers do to 8 accidents, at how many millions of vehicle miles are 9 driven on I-95 for every fatality that's out there. 10 It doesn't mean a thing to say, "This highway had 10 fatalities and that one had three, and one is a safer highway than the other, unless one knows how many miles are driven in that. And that's the situation that we're in now. The insurance industry has no idea about the relative safety of driving on a per-mile basis between Philadelphia and between rural Pennsylvania an Allegheny County or anything else. The only thing is, they know what is the average miles basically by the number of dollars that people pay. The way in which insurers make their rates, they simply collect costs on a car-a-year basis, divide them up by zip codes or divide them up by various profiles of drivers, and credit score was alluded to, and they find out that people with credit 79 5/14/02 LAW & GOV'T - RES. 020174 problems, or people in some zip codes or some areas like Philadelphia, have costs of $1,000 per car a year, versus Adams County that has costs of $200 per car a year. And everybody pays the same after that. Well, my explanation for the difference between the two is, because the cost of insurance is high in Philadelphia, that people insure fewer cars and drive them more. And until the insurers can come up any kind of an explanation that's different than that, why, one should assume that on a per-mile basis that the conditions in Philadelphia are no different from they way they are in any other part of the state. I will admit that, sure, there can be conditions like congestion and so on that could affect that, but the insurers have no information on that basis; they're only measuring costs on a car-a-year basis. When the insurers want to talk sense about where their costs come from, they will use common sense that's available to anybody and make the commonsense argument. And ten years ago, Governor Casey had a reform, the choice no-fault reform, and had medical caps of damages. The law went into 80 5/14/02 LAW & GOV'T - RES. 020174 effect on July 1, 1990, just at the start of the Desert Storm upset and the 1990-91 recession and.

A year later, the Governor was boasting about how the accident costs had gone down for the insurance companies and had actually lowered costs in Pennsylvania. The Insurance Federation of Pennsylvania testified in 1991 to the House and Senate in Pennsylvania, and this is what they said. This was former President of the IFP, Henry Hagar, was also president of the Senate before that, and he said that the reason that Erie's costs went down is: "The country went through the Persian Gulf crisis, which raised the price of gasoline. It remains locked in a recession. This resulted in fewer accidents for auto insurers to cover. " Now, that makes a lot of sense and, in fact, a month after that testimony, State Farm found out it had a lot of excess funds because the same recession effect that happened in states around 81 5/14/02 LAW & GOV'T - RES. 020174 Pennsylvania as well as across the country, State Farm issued premium refunds from to percent of 4 the premium they collected, they gave it back. And 5 the reason was the recession and less driving, and 6 that went not only to the surrounding states around 7 Pennsylvania; it went to Ontario, Canada -- State 8 Farm did that. 9 The thing that the Governor's reform did 10 was, it mandated a rollback of 15 to 18 percent for 11 the reform cost savings. So Pennsylvania didn't get 12 the refunds from State Farm, 'cause they'd already 13 gotten it politically, and the Governor was taking 14 credit for that. 15 Now, the matter of the refunds -- that's 16 not here neither here nor there, whether the other 17 states were more sensible or not. The fact is that 18 the refunds went across the board, whether the people 19 who were unemployed, who were subject to the effects 20 of the gasoline prices reduced their driving or not; everybody got it. So the companies that didn't do a refund got windfall from a reduction in costs, which they wouldn't get if insurance was charged per mile. And everybody, whether they drove more or less or not, got the same annual refund. So that's not a 82 5/14/02 LAW & GOV'T - RES. 020174 very sophisticated way of telling people what to do to save money. It's --

Are there any facts with respect to the driving habits of those who were generally uninsured? Do we know whether or not a per-mileage basis would reduce the rates for those who are currently uninsured? Has there been a study of any kind?

Yes. Economic theory, which is supported by studies that I don't have -- and this is not specifically for automobile insurance -- says that insurance creates a moral factor in which people that are insured are less careful in activities than people who are not. And I think that won't make anybody fall off their chairs as far as that's concerned; there are all sorts of anecdotes about that "Well, I've got insurance; therefore, I can take more chances because my car is fully covered." And so the same must apply to people without insurance. If you forced everybody under the present car-a-year system to buy insurance, insurance rates would go down, but not for the reason because they're dangerous drivers or anything, but the evidence where people have done a state database enforcement is that 83 5/14/02 LAW & GOV'T - RES. 020174 uninsured cars are involved in fewer accidents, according to their numbers, than insured cars are. And in Utah the numbers were this: The insurance industry said that only 5 percent of cars are uninsured; therefore, it isn't worthwhile having a database and making us report monthly who our uninsureds are. The State Department of Public Safety said it can't be 5 percent because 9 percent of the people who are involved in accidents have uninsured cars, or that 9 percent of the cars are uninsured that are involved in accidents. And when they put the database in in 1995 and they checked the number of cars insured, which cars were insured against which cars are registered, the cars that were uninsured but registered were percent of the registered cars. 18 Now, what does that mean? That means 19 either that uninsured-car drivers are better drivers 20 than the rest, which I would reject; you were 21 suggesting maybe they might be worse drivers. It 22 either means they're better drivers, or the 23 non-invidious, rational way is to say that they're no 24 different from any other drivers, but they drive less; in fact, they drive less than half of what the 84 5/14/02 LAW & GOV'T - RES. 020174 other drivers drive, from percent of the accidents, and they have 23 percent of the cars. And I would presume that would hold forth in Philadelphia. So the rock and the hard place is now, if every car that was uninsured was made to be insured, why, those people would be the ones being overcharged because they drive less than average. To get to the matter of incentives --

Could we wind up in a moment so that we can move on with others?

Yes. What I would like to do is talk about incentives and what --

I think, you know, we all want to make it possible for the rates to go down to make it possible for more and more people to be insured. We understand from your testimony that it is doable, it is a workable plan, and it certainly seems to have many elements of merit and fairness and equity. On the details, I think you've convinced us.

All right. What is not part of the discussion here is -- and this will be the last topic, Councilman Cohen -- is how do people save money now how? Do they save money in Philadelphia? 85 5/14/02 LAW & GOV'T - RES. 020174 And the one way is if one has two cars that are being used to drive 20,000 miles, one can cut one's insurance in half by insuring one car and driving the same 20,000 miles -- same driver, same car, same condition, same miles. Only it's done in one car rather than two cars, and that cuts down. All right, the insurers are going to see where they were collecting two premiums, two cars years' worth of insurance for each 20,000 miles; they're now collecting one. And so their cents-per-mile cost has gone -- they're collecting less cents per mile, half as much, so they have to gradually raise the premium. So what happens is, people who want to save insure fewer cars and drive them more miles. That means that people who have less car-driving need will either lapse their insurance or sell their less driven cars, if they can; and, at great inconvenience in all cases, confine all their driving to one car. Well, if a household has two cars driving 20,000 miles and can't afford to keep both insured, so they save half their premium by insuring one, but they have two employed people, or they need a car for an emergency in that household, the natural reaction 86 5/14/02 LAW & GOV'T - RES. 020174 is not to sell the car, but to keep it illegally uninsured for emergencies. Now, the emergencies mean that they plan to drive it less because it is risky to be uninsured, it's risky for being caught without insurance, and then with Live Stop, it will be even riskier. So they're not going to drive that car very much, but it's uninsured because they have to have two cars. So for no cost, or statistical or accident reason whatsoever, those people are forced to drive fewer cars than they need. And that's exactly what the present system does. It's a cost of ownership. And that explains the entire problem in Philadelphia. That people are rational, economic actors, if you will, and they respond to the cost. And the cost of insurance now, the cost that people pay, is a cost of ownership, not a cost of driving. The cost that the insurance companies receive with accidents is a cost of driving. When the driving goes up, their costs go up, but they're not collecting any more per car. So there's a mismatch there. , that the annual rates per 87 5/14/02 LAW & GOV'T - RES. 020174 car go up when too many people economize by insuring fewer cars and driving them more. And that's exactly the problem in Philadelphia. People don't change character if they move to the country from Philadelphia or move back and forth, they don't become different drivers, there's no difference in the driving; it's the difference in the way the insurance is charged. And it's that analysis, and it is just basic economics of how people are forced to save by the price that they're presented with as a cost of ownership. And yet, insurers will admit that as the amount of driving goes up and down, their costs go up and down, and that happens not on an individual -- that happens not only on a group level that they see; it happens on an individual level, but there's no 18 payback or no saving to the individual that drives less. And so, in a nutshell, that's the kind of thing that the public has to understand and become outraged about: That they're Being forced to drive fewer cars than they need for an entirely artificial reason. There's no cost or statistics or anything else involved in that. 88 5/14/02 LAW & GOV'T - RES. 020174 And I'll conclude that one of the ways that we're outreaching to the public -- and I think you all have copies of this little pamphlet that we made for San Antonio, where there are certain areas in their by zip code where they're paying 50 to 150 percent more per year and our explanation to them.

And we would work with elected officials not only in the Philadelphia City Council, but also go back to Harrisburg and talk to the people from Allegheny County and from Dauphin County and from all over the state, because they all have that problem where people are driving cars 2,000 miles and are paying 10 cents a mile or 20 cents a mile, which is less than a lot of people in Philadelphia are paying on a per-mile basis. And if the public -- that's a real simple arithmetic to understand. It has a solid, theoretical, economic reason that the way people save is by cutting down on the number of cars 'cause that's how insurance is sold. And when the public finds out how they've been taken to the cleaners, I guess, by the insurance industry on this, then something will get done. It's 89 5/14/02 LAW & GOV'T - RES. 020174 got to be taken out of the hands now -- or the responsibility not entirely to the State Legislature, but the public has to get in there and challenge, become a sceptic of the insurance industry. And I did want to say one thing about --

One thing, Mr. Butler.

Okay.

The analogy between Adams County that you have used and Philadelphia seems to play into the theory that maybe in Philadelphia, we're not being overcharged because on a per-mile basis, we're paying less than the people in Adams County. Now, did I miss something along the way?

Well, I'm saying what happens is that people who have to save can't afford to pay more per mile than anywhere else, who have to save and can arrange to do it will drive fewer cars more miles. That means that people that have less requirement for driving -- if you drive a car and only need a car for 5,000 miles in Philadelphia, you can't afford to pay for a 20,000 mile average. So eventually, they'll have to get rid of the car or drive uninsured; they have no car to share. 90 5/14/02 LAW & GOV'T - RES. 020174 Hence, you either produce -- when a car that is driven 5,000 miles is taken out of the pool that has an average of 20,000 miles and there are 30,000-mile cars in that pool, then the average miles goes from to 21,000, or lower-than-average-mile 7 cars drop out of that pool, and it moves to 22,000 8 miles to 23,000 miles. Insurers see their annual 9 cost per car go up, and you get a classical market 10 failure or adverse selection where the 11 lower-than-average cars leave the pool; therefore, 12 the pool average goes up. 13 And that's explained in this report to 14 the Texas legislature of that particular phenomenon. 15 In other areas, in Montgomery County, 16 people can afford to keep cars that are charged -- 17 they can afford to ride commuter trains to 18 Philadelphia, and their car sits at the station out 19 in Montgomery County or in Chester. 20

All right, thank you very much, Mr. Butler. Are there any questions? (No questions.)

All right, thank you very much, sir. 91 5/14/02 LAW & GOV'T - RES. 020174 That completes Panel 1.

No, we have Mr. Gray from Human Resources, he has to testify.

Okay, good.

And then we have the last panel, Panel 3. (Witnesses come forward.)

Mr. Gray, please identify yourself for the record.

My name is Jacob Gray, and I'm an employee of Resources for Human Development, which is a large nonprofit here in Philadelphia. Good morning -- if it's still morning okay -- Councilmembers, Chairman, Senator. And thank you, Councilwoman Tasco. RHD is a large nonprofit, as I said, here in Philadelphia. We operate at an annual budget of about $100 million. We operates hundreds of programs in the area. These include a self-sufficiency program for formerly homeless women with children, economic-development programs that build jobs, and hundreds of units of affordable housing. We are here because we believe -- RHD believes that a mileage-based auto insurance program 92 5/14/02 LAW & GOV'T - RES. 020174 would benefit our constituents, many of whom cannot afford insurance currently and are, thus, limited in work and lifestyle option. RHD has, therefore, invited Mr. Weissbord (ph) from CLV Ventures, which is a partner with whom we've worked over the years located in Massachusetts, to testify on behalf of this resolution. As Dano will explain in his testimony, CLV Ventures is currently gathering data in Massachusetts that would support the assertion that mileage-based insurance may be good for urban residents, good for transit systems like SEPTA, reduce numbers of uninsured drivers, improve the environment and the quality of life.

Could I ask you to just slow down a little bit.

We, therefore, wholeheartedly support the resolution. Let me list that list again. Dano's study, which is going on right now in Massachusetts, may support the assertion that mileage-based insurance is -- will reduce numbers of uninsured drivers, improve the environment and the general quality of life, and be good for urban residents and 93 5/14/02 LAW & GOV'T - RES. 020174 good for transit systems. So I want to just turn it over to Dano.

My name is Dano Weissbord. I work with CLF Ventures in Boston, Massachusetts. I want to tell you a little bit about who we are. We are a nonprofit advocacy organization. We do primarily urban and environmental work; and, in fact, one of the things that I think makes us unique is that we see that both urban and environmental issues are integrally linked, and that what is good for the environment is good for cities, and what is good for cities is good for the environment. The other thing that is unique about the work that we do that is we look for solutions to advocate for the environment and for cities in the for-profit sector. We are nonprofit; we do our work with and in the for-profit sector. And that's one of the reasons that we're so excited about mileage-based auto insurance, is we see that it means that unique intersection of urban issues, environmental issues, and has a potential to be good for those who need to sell it. I was very excited to -- 94 5/14/02 LAW & GOV'T - RES. 020174

How do you see it impacting on the environment?

We see that theoretical studies have shown that a mileage-based auto insurance product could reduce average vehicle miles per year, so the average amount that drives a year by percent. 9

"Could reduce," you 10 said?

That's correct. And I'll hit on that a little bit more.

Could you tell us why?

Can I get there?

I'm trying to get you to summarize your testimony rather than to give us all the theoretical bases, because what we need to do is to be able to get information which we can use practically, and that's the reason I'm asking. People will ask me, why do I think this is good for the environment? why do I think it's going to produce cheaper rates, why? And we need simple, direct answers. We're all convinced that the present system is terribly unfair. The mileage system seems 95 5/14/02 LAW & GOV'T - RES. 020174 to have a lot of good points for it, and we're just asking for your assistance in giving support to the concept.

Absolutely. We see that the reason that people reduce their miles is because at the -- when you're paying on a per-mile basis, there's incentive to drive less. There's a direct economic incentive. Let's say you pay $1,000 a year for auto insurance. Once you pay that $1,000, it's gone and it's never coming back, so there's no reason not to drive, from an insurance standpoint, as much as you want. If you're paying by the mile, there's an economic incentive to drive less. And that's why theoretical studies say that people are likely to reduce 10 percent nationwide; even better numbers in urban areas like Philadelphia that have good access to transit, because they have more transportation options.

All right. That's a very good answer. Thank you.

You're very welcome. So let me talk about three things. One is, we are currently conducting a study on mileage- 96 5/14/02 LAW & GOV'T - RES. 020174 based auto insurance in Massachusetts. We have federal funding from the federal highway's value pilot pricing program. We've been allocated with first-year funding. We're about to begin recruiting participants. And we've put together a unique partnership of: CLF Ventures, a nonprofit; The Plymouth Rock Mutual Insurance Corporation, a for-profit Massachusetts auto insurer, who will be assisting with the study; The Massachusetts Office of Consumer Affairs; and The Massachusetts Executive Office of Environmental Affairs. So this unique group has come together and has shown and said that we're interested in investigating this further. And that's the basis on which we've submitted our study to federal highway, and they've funded us. I've attached our study proposal to my testimony, it's in front of you, and that gives out all of the details. (Copy of above testimony and attachment not provided to stenographer; therefore, is not 97 5/14/02 LAW & GOV'T - RES. 020174 attached hereto.)

Without giving us all of the details as to how the study was conducted and what its minute conclusions are, could you give us an overall oversight? so that we could say, In Massachusetts, they've had an experiment which found "so-and-so"? We want it to be a reliable summary.

Absolutely.

Could you give us that summary? What was the result of that four-pronged group effort?

We don't have a result yet because we are currently in the process of recruiting participants to help us. Plymouth Rock Insurance Corporation is helping us recruit participants from among their insured. So we are just at the beginning. So we have many of the same questions that. We do not --

Well, if the result of the study is what you anticipate it might be or what you hoped it might be, if that's what turns out to be so, would Massachusetts be able to implement a program of offering insurance by the mile? 98 5/14/02 LAW & GOV'T - RES. 020174

We would hope that if the results turn out as we hope and expect they will that, in fact, we will advocate, along with Plymouth Rock, who will asking questions about, Does this make economic sense for an insurer? that we will, along with our state and private partners, will advocate for a change of regulation in Massachusetts that would make this possible.

I wanted to add on to one point because you brought it up earlier, Chairman Cohen. An important part of the study is, they're not only going to track driver behavior, so it will be, Do people drive less? how much do they drive? and what's the actual correlation between number of miles driven and how many accidents they get into? but they're also going to look at pricing. The most important part about this is, if it theoretically makes sense, will any insurers actually do it? and can they actually make any money doing it? and is it economic? And that's going to be a part of study, as I understand, as well.

That's correct. And that was why Plymouth Rock was interested in joining us. 99 5/14/02 LAW & GOV'T - RES. 020174 They believe that they can make money selling this kind of insurance, and so we see that the economic forces and the public-interest forces are aligned in this case.

Is Plymouth Rock an auto insurance company?

Yes, they are. They're one of the largest auto insurers in Massachusetts. They've just recently expanded to Connecticut.

Okay.

I am sure with State Farm -- and it seems to me that every policy has one question that asks, Do you drive less than 5,000 miles? and do you not use the car for work? which, when I called, it indicates that if you drive less than 5,000 miles and don't use your car for work, there is a lower rate. Are there any studies by State Farm, or have they had any experience they can report?

I'm not familiar with it.

'Cause that's kind of the beginning of what you're talking about, isn't it? That's the only thing I've even seen on insurance that's vaguely related to the mileage. 100 5/14/02 LAW & GOV'T - RES. 020174

Yes. Let me give two answer. I'm not familiar with anything that State Farm has done. However, yes, in Pennsylvania and in Massachusetts, there is a discount that is offered. If you, you know, sign on the dotted line and swear that you drive X-number of miles or fewer, you do get a small count. We think that that discount is relatively small compared to what would it would be if people paid on a per-mile basis.

Mm-hmm, all right. Thank you.

So it's just a "make-you-feel-good" discount, right? Not a real discount. It's just a "make-you-feel good" discount. (Laughter.)

That's right. That's a bone that your insurance agent can toss you sort of at the end and say, Oh, look, I can give you 5 percent more if you say you do this.

All right. Is there anything further?

We're very excited about the resolution that's before the subcommittee and 101 5/14/02 LAW & GOV'T - RES. 020174 before the Council, and we hope that if there's any way that we can be of assistance in the future, we hope that you'll call on us. Thank you for your time.

Well, the subject has a very active chairperson supporting it; that's the sponsor of this resolution. So you can expect to hear from us frequently with respect to that, until you agree that there's a real measure of success.

Thank you. We'll be working with you to see the outcome of your study in Massachusetts and work with our legislators. Maybe we can get something like that going here in Pennsylvania. And it would help us develop the argument because we have to convince the legislature to be interested in this issue. So that's a good start.

Absolutely. We look forward to it.

And your testimony all will go into the record. So we'd like for you to stay and we appreciate your coming down for this hearing and --

The other reason I was 102 5/14/02 LAW & GOV'T - RES. 020174 thrilled is that I am a third-generation Philadelphian, so I'm actually thrilled to be here.

So you're home, okay.

Stay here for a moment 'cause Representative Waters, I believe, had a question. STATE REPRESENTATIVE WATERS: Thank you. Thank you, Mr. Chairman. I'm a state legislator just like Senator Kitchen, and that is why Councilwoman Tasco invited us to come here, because this is something that we want to look at on the state level. I heard the other previous testifiers say that there was public hearings that was held, and you maybe can't answer that, but I wanted to know if Texas had hearings that was held by the state or they was held like this hearing that's held by City Council.

I believe that Mr. Butler is probably more prepared to answer about Texas. He'll be right back. STATE REPRESENTATIVE WATERS: Okay. Don't worry about it. 103 5/14/02 LAW & GOV'T - RES. 020174

We have transcripts from those hearings and we can provide that to you. STATE REPRESENTATIVE WATERS: Okay, thank you.

We have that. STATE REPRESENTATIVE WATERS: Speaking on the environmental issue, I guess you could just assume that if people just drive less or less cars on the street, that that is going to clean the air up somewhat too if it's less pollution coming from auto emissions.

That's absolutely true. There's major emissions benefits, so things on a very large scale like global warming, but there is also immediate local effects. If there's less emissions in cities, there's less particular public health pertaining to cities. Emissions is a big one, and the health effects from auto emissions are significant in urban areas. You reduce emissions, you reduce some of those health effects. Less congestion means safer neighborhoods, more pedestrian-friendly neighborhoods, et cetera. STATE REPRESENTATIVE WATERS: Yes, I agree. It's just like riding a car. If you got to 104 5/14/02 LAW & GOV'T - RES. 020174 pay by the miles, you going to, you know, be careful about how many miles you put on the car.

That's right.

And I wanted to also ask, since you're going to start at a rate, a flat rate of cents a mile or 5 cents a mile, and just like with 8 the insurance companies that we have right now, if 9 prove that over so many years, you a good driver, 10 they say that they'll give you a reduced rate. Do you think that that's possible with this, too?

Actually, I think that one of the things that I need to clarify is, for the purposes of our study in Massachusetts, we are actually starting with people's existing rates, what they're paying now. And we are merely offering them a bonus if they fall below a baseline mileage that they will establish early in the study. We're not exactly sure what the appropriate structure for the pricing should be, and that's one of the things that we'd like to find out. Your example is a perfect one. Clearly, if somebody has a poor driving record in the past, perhaps they need to start at a slightly higher per-mile baseline; whereas somebody who has proven 105 5/14/02 LAW & GOV'T - RES. 020174 themself to be a safe driver may start at a lower per-mile rate. STATE REPRESENTATIVE WATERS: Okay, all right. Thank you.

You're welcome.

I think what happened - this is an idea that's in the early, early germination stage, and as it moves forward and gets more public airing and documentation of the benefits of it, we can see it coming to fruition down the line. And I do hope that the public will get on the -- I agree with Mr. Butler, Dr. Butler, that the public has to get engaged in advocating and lobbying for this if we're going to make a quick -- a more quicker effort to this than just waiting for the time to go, 'cause I was surprised that we had hearings back in '91, and here we are 10 years, 12 years later, still trying to move it along. But since Texas has done it and you're moving to do the study, we hopefully will see a movement, and hopefully that the insurance companies won't just immediately put up a barrier kind and say that it doesn't work, but kind of look with us, 106 5/14/02 LAW & GOV'T - RES. 020174 'cause in the end, I believe they make more money if they insure more people.

One point. There's a question of whether the Massachusetts data will be directly applicable to Pennsylvania or not that I wanted Dano to speak to.

Yeah, we think that the concepts are universal, clearly the markets are slightly different in Massachusetts and in Pennsylvania, and the regulatory structure in Massachusetts is quite a bit different than in Pennsylvania. There's virtually no competition between and among insurers in Massachusetts, it's very limited. Prices are fixed at the state level. So it is a bit of a different environment.

All right, thank you.

All right, thank you. Thank you both very much for your patience and for the information you've given us.

You're very welcome.

We'll be in touch with you, I'm sure. 107 5/14/02 LAW & GOV'T - RES. 020174

Thank you.

Thank you.

Panel No. 3 is John Doubman, the Secretary and Counsel of the Insurance Federation of Pennsylvania. (Witness comes forward.)

Welcome, Mr. Doubman. Please identify yourself for the record and proceed.

Thank you, Councilman Cohen. I am John Doubman, the Secretary and Counsel of the Insurance Federation of Pennsylvania.

Thank you. Go ahead, sir.

We represent about 200 insurers, including most of the major insurance carriers in the Commonwealth. I know you're a little bit pressed for time, and I thought maybe I could help clarify a couple of things I heard discussed today.

Very good.

Councilman Rizzo wanted to know where the piece in Act 93 went of taking someone's car for not having insurance. We removed it; we lobbied very strongly to remove it. 108 5/14/02 LAW & GOV'T - RES. 020174 The reason we did that is because the state doesn't have -- and, believe me, doesn't want to try to get -- a system at a coordinated state level to try to keep up-to-date records on every driver in the state with respect to insurance. So, consequently, there's no way for an officer to check that right now, and there won't be for a number of years unless you want to pay for him to have a unit in his car and want to pay for a system at Harrisburg to track all of that for 200 companies that write auto insurance. Florida has been trying to do it for ten years. They spent upwards of to $30 million and 15 are no closer to working the bugs out of the system 16 than they were when they started. You have to have 17 the vehicle identification number in there, which is 18 13 to 14 digits, and mistakes are continual. The 19 records of the state -- it's an absolute mess. 20 Consequently, the -- and to answer 21 another question, the way the thing works right now 22 is, my companies report you as having lapsed your 23 insurance if within the first 180 days you have a 24 policy, the theory is, if you've been carrying 25 insurance for ten years, you're not going to go 109 5/14/02 LAW & GOV'T - RES. 020174 without insurance. We're going to report that. We worked out a deal with PennDOT. So we report cancellations with 180 days, and then they go back and they cancel your registration, and that's when you would pick them up under your Live Stop Program, just to explain that, 'cause it came up earlier.

So you're saying that as a practical matter, there is no way that a police officer can determine that the insurance has lapsed for any reason, that once there's for identification that insurance has been bought, say, within the last year, the police officer has to assume that the insurance is in order.

I don't know how he would disprove it, Councilman, okay?

Okay, we can understand that. That makes clear the reasons for the difficulties that the Managing Director was coping with.

Okay. Secondly, with respect to mileage-based rates, let me say two things: First of all, this is really not a rating issue as much as it is a purchase technique, which 110 5/14/02 LAW & GOV'T - RES. 020174 presents a lot of promise. Insurers like choice. We have a competitive market in the Commonwealth, as someone said, and --

Before he begins on the mile by rate, the rates in Philadelphia, and there have been statements made by a lot of folks that Philadelphia is redlined by the insurance companies in terms of auto insurance, and the rates in Philadelphia are extremely high compared to other parts of the Commonwealth. And this charge -- and in the poorer neighborhoods, because we have a greater degree and a higher percentage of poor people in Philadelphia than in other areas of the Commonwealth. It really almost makes it -- the current rate structure in Philadelphia almost makes it impossible for poor people to have insurance and eat or pay rent; and they have to choose, in many instances. That's why we're having these hearings in terms of a new structure in order to make insurance... The problem is the insurance industry and the way they deal with the County of Philadelphia. And I think there has to be reform at that level in 111 5/14/02 LAW & GOV'T - RES. 020174 order to make cities like Philadelphia in this Commonwealth a more fairer structure and allow poor people in this city to be able to own an automobile. The jobs are right now are in the suburbs, and they come into the City to recruit workers, and many times, they go into poor neighborhoods, and they just cannot afford that insurance for that car in order to be able to -- so many of them are forced to drive illegally now. Now, how do we deal with that? I think the issue is the way the insurance structure of this Commonwealth is structured and the way that it is applied in Philadelphia. I think if we had a fairer system, I don't think we would be having this hearing.

Well, I think we would.

Okay.

Because the basic problem, Councilman Ortiz, is that it costs so much more here rather than in other parts of the state to sell and service insurance policies. The loss experience here is horrific. It has to do with -- as every agency says, whether it's the Philadelphia Inquirer or the Philadelphia 112 5/14/02 LAW & GOV'T - RES. 020174 Magazine, go back for years, and every so often, they go through these gyrations of restudying this problem, and they always come to the same conclusion: We have virtually an out-of-control reparations system. The loss costs are extremely high here, you know, auto repairs cost more, medical care costs more. Philadelphians are three or four times as likely per accident to make a claim for personal injury than other parts of the State. I don't know why that is. I can leave it to your imaginations. The recoveries here in each of those auto accidents is as much as twice elsewhere in the state, and you wonder why it costs more to buy insurance here.

You're blaming the 18 litigation that takes place? 19

What we would like to do 20 is --

Excuse me. You're blaming the litigation that takes place?

I didn't say anything about litigation.

But that's -- what was 113 5/14/02 LAW & GOV'T - RES. 020174 your whole answer. I mean, your answer, in essence, says that people litigate in Philadelphia, that they claim more per accident, and they go to court obviously. Is that --

It's a major problem.

Okay.

It's a major problem.

They don't litigate in other parts of the state; they don't litigate in Pittsburgh, they don't litigate in --

They litigate, but there are --

They don't litigate in Susquehanna County and so on?

Certainly they litigate, but they litigate many fewer claims on a per-property damage-incident basis, and the recoveries and the costs of backing up your policyholder on those claims are significantly less, but --

Do you have substantiation for that? I'd like to see that data that you have.

Sure. I'll be happy to --

I'd like you to 114 5/14/02 LAW & GOV'T - RES. 020174 provide that to this committee.

I'd be happy to provide that. We've provided that in many forums and, indeed, wanted to go over and talk to the Mayor's task force about it, and actually did present a fair amount of data to the Mayor's task force and suggested that basically, although mileage-based rates is interesting from a purchase proposition, which we don't necessarily oppose, I don't think, but if the Council wants to merely recommend to the State that they enable insurers to offer insurance on a mileage-based rate, I don't think the Insurance Federation's going to oppose you. I don't know what the Insurance Department will think; that's another issue. But I don't think that would be something we'd object to. In fact, Progressive, who is a member of the Federation and who I talked to about this, is very interested in trying this system out in Texas. I'd only make two points and then I'll get off and let you hear from some of the other folks that you have that want to testify today. You need to understand that the mileage- based piece of this is not really something you're 115 5/14/02 LAW & GOV'T - RES. 020174 doing rates with. The rates that progressive used in Texas developed -- in other words, the per-mile rate was based on traditional rating criteria; it wasn't based on just miles alone. Miles alone is a terrible way to base rates. It remains to this day the most significant factor in the cost of servicing your auto insurance is where the car's garaged. It accounts for 60 or 70 percent of the predictability of how much cost you're going to have. So that's one thing that we -- And, Councilwoman Tasco, when I received your resolution, I wasn't sure what proposition you were putting forward. So if you do read my testimony, you may see me spending time in talking that as a rate-based issue. As a purchasing issue, this is a very interesting proposition. Unfortunately -- and Professor Butler has already alluded to this -- the problem is that the proprietary technology and the GPF system that's required to validate the mileage on an ongoing basis, that was all paid for down there, and it wasn't paid for by the policyholders. When they get around to calculating whether companies can make any money on this, they're 116 5/14/02 LAW & GOV'T - RES. 020174 going to have to include whatever cost that is, and that wasn't done in Texas. So while the Texas purchasing plan did indeed yield a lot of savings, I don't believe that it was net of those other costs, and that remains a technological obstacle. But insurers like choice. Progressive, after all, was the one who went ahead and tried it in Texas. And they're not done experimenting with it. Again, at the end of my testimony, I --

You talked about the rate is based on where your car is garaged. There are people who live in Bucks County and Montgomery County. And I think in your testimony, you referred to risk of driving down Roosevelt Boulevard. And if where someone drives is indeed the greatest predictor of risk, then why is a driver who garages her car in Bucks County charged significantly lower rates than a driver who garages her car in the Northeast, where both drivers commute down the Boulevard each day and have a similar age, income, education, and other characteristics, but both travel down the Boulevard?

Well, I --

But one lives in 117 5/14/02 LAW & GOV'T - RES. 020174 Bucks County and one lives in Philadelphia.

I don't know that I can explain any particular factual context to you, Councilwoman. The statistics are -- as a matter of fact, Progressive, the same company that ran with this in Texas, just came out with some additional findings from a large study they did with their policyholders. Twenty-three percent of accidents occur within a mile of home. Accidents are more than twice as likely to take place one mile from home compared to miles from home, and only percent of reported accidents take place 50 miles from home. Those are the risk numbers; they didn't load them up. I mean, they just can did a survey of the policyholders to find out where those people who had accidents, where it took place. So it's terrifically important where driving goes on. There is no question there are inefficiencies in the current rating system. I wouldn't stand here and tell you there aren't. But I don't think they're the answer to Philadelphia's 118 5/14/02 LAW & GOV'T - RES. 020174 high-cost insurance problem.

Go ahead. STATE SENATOR KITCHEN: Doesn't profit have something to do with how much on premium goes toward the percentage for advertising, a percentage for profit, and a percentage for whatever else? Now, profit comes in here somewhere, and it would seem that someone who would be going just to work for the purpose and coming back home, and senior citizens, a policy based on the per-mileage would seem to be curtailed to somebody of a low income like senior citizens, as opposed to someone else with a more affluent income who would do much more driving, which would lead us to say, it could work for one population, except for the others, except for the profit. And I do think that if you're paying more in certain neighborhoods, of course, with no 20 fender-benders, as it was stated earlier, okay, some money is made there. You looking at poor people with a less-mileage car, the car doesn't cost as much. It do look like those factors could be taken into account, that you're not talking about the newer cars, and you would not be talking about people, say, 119 5/14/02 LAW & GOV'T - RES. 020174 driving all the time. And it is some issue here in terms of profit, though.

Well, Senator Kitchen, I don't have any quarrel with what you said, but I do think that there -- as long as we have a private- industry-based automobile insurance carrier is out there, there's going to be a piece of profit built into everybody's rates. The companies are not in business to lose money and, as Professor Butler said, if they lose money too long, we end up with a bankrupt insurer, and now all of the rest of the insurers pick it up under our pooling system. So there's going to be an element of profit worked in. If you're telling me that this has the promise of being a purchasing system that can help the low-mileage driver, I'd have to be awful dumb to deny that. But, again, I don't necessarily think it's the answer to Philadelphia's high insurance rate problem. STATE SENATOR KITCHEN: Well, how about in the case of -- I know it's set up to make up a profit; I'm not saying that. But what about in the case of, say, for 120 5/14/02 LAW & GOV'T - RES. 020174 instance, with the whole prescription drug issue that we -- and we were fighting that for several years, and for several years, we asked the big manufacturing companies to show some responsibility toward seniors and low income, and they came up with a limited prescription drug, which we don't know yet if it will help, but it appears that it would for people of certain incomes pay a certain percent a month and drugs can't -- they can't purchase drugs at a discount. What I'm saying is, would you be willing with us to look at some options here for people? because these folks evidently is falling within a certain income, and we are looking at people who will lose their automobile or, you know, be in serious trouble. It's obvious they can't pay into the regular system.

Well, Senator Kitchen, you know our reputation in the legislature. We'll talk with you anytime about any proposal you have. In the end, I don't know whether we will necessarily back it, 'cause when you're talking about subsidies -- now, Professor Butler doesn't like some subsidies, and as a rule, when it comes to actuarial 121 5/14/02 LAW & GOV'T - RES. 020174 operation of insurance, we generally don't like subsidies either because it puts incentives in the wrong place, and we would be happy to entertain any proposal. But I don't know that actually improving the economic welfare is something you really want to work into your insurance system, because he feels that -- apparently, some of the environmental folks feel that the present system either subsidizes or maybe, I should say, encourages excess driving. I don't honestly know whether that's true or not. But the insurance system really operates best when costs are allocated as accurately as possible. And this system has promise of doing some good allocation; it's just that I don't think it's feasible right now from what I understand from my companies. STATE SENATOR KITCHEN: Thank you.

Councilman Nutter?

Thank you, Mr. Chairman. Good afternoon, Mr. Doubman. I know I didn't hear all of your testimony, so if I ask a redundant question, please let me know, and I'll read 122 5/14/02 LAW & GOV'T - RES. 020174 the answer in the notes of testimony. Let me just ask a little bit of background. The Insurance Federation of Pennsylvania, you represent all of the insurance companies?

No. We'd like to represent them all, Councilman, but we actually represent about 200. And it's only the commercial companies; we don't represent the blues since they are, in theory, anyway, not for profit. We represent the commercial side on all lines. We represent life insurers, health insurers, auto, you know, commercial insurers, Worker's Comp. and med mal insurers -- at least one of them, anyway.

They, what, pay a membership fee or something?

They pay dues to us.

They pay dues?

They pay dues to us to --

So it's a membership organization.

Yes, that's correct.

Okay. So -- and you said you don't represent all of them. Are there -- 123 5/14/02 LAW & GOV'T - RES. 020174 with the exception of the blues, are there companies that you don't represent?

Yeah. We apparently have -- something went on between us and Harleysville some years ago, and we've been trying like heck for three years to get 'em back into the fold. So there are some companies out there, and some substantial companies, that we don't represent. Other companies take the position that they want to let national trades try to work on the local level, and they don't choose to enter our organization. So there are some companies out there, and some substantial ones, that don't belong.

Okay. Now, I'd like to ask you some questions about rates. Why is it that it appears, either in perception or in fact, that there is a difference in rates based on where you live, whether in Philadelphia County or in other county of the Commonwealth or from one neighborhood to another in the City of Philadelphia? Is that the case?

Well, how to answer the question. We don't have a unified rating system across the state. 124 5/14/02 LAW & GOV'T - RES. 020174

Why is that?

Well, you could. We don't have it because the law doesn't provide for it.

Well, I could have hair but I don't. Why don't you have it?

Well, it's really the same answer, I mean, because the legislature didn't set it up that way.

So how is it set up? You know, I'm not in the legislature.

It's set up in rating territories. Philadelphia County is probably the largest and it's a rating territory on its own. I used to have a piece with me that has it broken down, but there's maybe, I'd say, maybe 40 rating territories. You're really getting me into an area where I'm far from an expert. But in any event, the costs are gathered for those different rating territories based on where insured vehicles are garaged, as far as I understand it.

Where insured vehicles are...?

Are garaged. 125 5/14/02 LAW & GOV'T - RES. 020174

Are garaged?

Where the home is; where they live, if you will.

It doesn't mean that they have to physically have a garage or --

No, no, no, no, where the vehicle is located, I'm sorry.

Okay, okay.

You speak very technically and I should be careful. So that, for example, if the person from Bucks County that we heard about driving down the Boulevard has an accident in Philadelphia, and we couldn't get Mayor Rendell to get this straight, that accident is not charged to Philadelphia; it's charged to Bucks County, where he lives. It's charged to his home, the driver's home, where the vehicle is kept or garaged.

Just a point of order. You said the accident is charged to the person's home?

Correct, to where the vehicle is kept, not where it's driven.

But if they have an 126 5/14/02 LAW & GOV'T - RES. 020174 accident in Philadelphia, the statistic is tied to Philadelphia.

No, it isn't. That's just the point I made, Councilwoman. The accident is charged to where the policy is located, where the vehicle is located. If it's a person who lives in Bucks, it's charged to whatever appropriate rating area within Bucks is.

Well, when you say "charged to," for insurance company purposes, you're saying that it was a Bucks County person who had an accident somewhere, but they live in Bucks County, and so it is, quote/unquote, charged back to Bucks County?

Right, for purposes -- I understand for purposes of insurance company rate-making that it's taken into account as a cost of servicing a Bucks County. It has nothing to do with Philadelphia.

Well, then let me try to understand this. Are you saying that the insurance companies, when they try to figure out -- what did you call it, "rating territory"? What did 127 5/14/02 LAW & GOV'T - RES. 020174 you call that, what was that term?

Well, they don't figure them out, they're set. But whatever rating territory that's where I said it would be charged to their home and --

Who sets the rates and the rating territories?

The Insurance Department.

The Insurance Department.

Mm-hmm.

Of the Commonwealth of Pennsylvania?

That would be correct.

Let me make sure I understand this. You're saying that the State Department of Insurance, or the Insurance Department, sets the rates for the different rating territories?

They establish the rating territories.

I got that part.

And they approve the rates which auto insurance companies file with them.

All right. So that's 128 5/14/02 LAW & GOV'T - RES. 020174 a little different. They don't set the rates; they approve what the companies apply for.

Well, the companies propose the rates, and it's like the utility commission work, the department argues with them are or tells them they're too high or too low or --

And so how do they determine what the rates should be in Philadelphia County versus Lackawanna County? How is that determined?

A general overview of the process is that the company determines a loss cost; in other words, what it costs to service policies in that county. And then they go --

Based on what?

Well, based on gathering data of what it costs to service the policies in that rating territory. Now, some of the companies don't do that for themselves --

I'm sorry, I don't mean to interrupt you, but you have to understand, all of my knowledge about insurance is a function of getting a bill in the mail and paying it. It's 129 5/14/02 LAW & GOV'T - RES. 020174 everything I know about insurance.

Okay.

So you'll have to go slow with me. You said "the cost to service the policies," is that the term you used?

Correct, the cost --

What does that mean? What does it cost?

It means everything from what you have to pay to get cars repaired, what you pay to rent a car so the person can have it, what you pay your people --

What you pay your people?

What you play employees who service the policies.

Mm-hmm.

The cost of the paper, the cost of your rent on your building, whatever.

Number of accidents in the area, is that --

The cost of the accidents. I suppose the number of accident is technically 130 5/14/02 LAW & GOV'T - RES. 020174 irrelevant except insofar as it costs you something to pay out the damages on those accidents, to the extent that you're contractually obligated to do so. Once that is done -- and what I was going to tell you is -- every company is not big enough to do that for itself. Some companies subscribe to an insurance like the Insurance Services Office, where the data is accumulated by a statistical agent.

What's that, insurance what?

The name is not important. Just say there are some statistical agents around who do that work typically for companies that are small enough that they don't gather all of their own data. State Farm and AllState, they have their own data and their own actuaries, but that work can be contracted out. But, in any event, the first step is filing the loss costs for the different territories. Then the second step is, the company comes in with a proposal to adjust its rates. It says what it wants in profit, it says what it expects to happen, whether we're going to see a big increase in this cost or that cost. If the price of steel 131 5/14/02 LAW & GOV'T - RES. 020174 doubled, I assume a company is going to want to include something additional for the cost of auto repairs. If the auto repair shops succeed in their campaign to have every vehicle replaced with brand-new parts from Detroit, buy General Motors stock, and your insurance rates are going to go up.

Well, so, let me understand. So, again, is it true that there are different insurance rates between Philadelphia and the counties around us?

Yes.

And why is that?

'Cause we don't have one big rating territory here in Pennsylvania.

Well, what's the difference in cost between fixing a car, paying employees, and all of the items that you mentioned, the elements that you mentioned, between Philadelphia and Montgomery County?

Well, I was getting into that a little bit. The claiming behavior --

Well, you can now get into it a lot.

Well, I'll get into it as 132 5/14/02 LAW & GOV'T - RES. 020174 far as I'm comfortable making representations to Council, and I'll offer to supply anything additional that you need.

Okay.

But the claiming behavior in Philadelphia is significantly different than in other counties -- not so much the suburbs, but clearly different than the rural counties.

People in the suburbs and the rural counties don't make claims; they just let bygones be bygones and say, Oh, life is wonderful and --

No --

-- and the fact that my car is all damaged --

NO, i Never said that. Councilman Nutter: Okay.

What I said is that they make less claims, and the claims they do make are less costly to settle.

They make less claims because there are less actions?

Less claims on a per -- generally the way these things are ranked is, you 133 5/14/02 LAW & GOV'T - RES. 020174 look at how many property damage incidents you have, and then you see how many bodily-injury claims were made as a percentage of that, okay? So in terms of frequency, Philadelphia is the highest in the state by far. In terms of the cost of settling those claims, Philadelphia is the highest in the State by far. So those costs have to be included in the cost of servicing Philadelphia policies.

Earlier you said, in response to another question, that something was not -- and I forget what the something was -- was not the answer to Philadelphia's high insurance rate problem.

Yes. I believe that a mileage-based rate purchasing system --

Mm-hmm.

I didn't know when I wrote tell me whether we were talking about a rating system or a purchasing system. I believe Dr. Butler's proposal has devolved mostly into a purchasing technique.

Okay.

Which shows a lot of 134 5/14/02 LAW & GOV'T - RES. 020174 promise.

So --

I don't believe that that system, no matter what formulation we wind up getting at here, is the answer to Philadelphia's high insurance rates.

Which now I want to ask you: What is the answer to Philadelphia's high insurance rates?

There are a lot of answer to it, and we've put forward a lot of those answers and suggestions we have. I can tell you about several that we've already worked on. As an example, the Insurance Federation raised about $700,000 and had designed for the Police Department and installed at the Police Department a system for getting accident reports on line. This will save our companies money, it saves the middle man. It will enable to us service policies and settle claims quickly, and should result in some efficiencies. Our company annually raises among itself assessments on the order of $8 million a year, $2 million of which is granted to the District 135 5/14/02 LAW & GOV'T - RES. 020174 Attorney's Office here in an attempt to discourage insurance fraud. We believe that that's a good investment, we believe that that helps keep down the insurance fraud.

Do you know how many people were prosecuted last year for that?

I don't. I don't have that figure in front of me. They've been doing a good job. I don't know how much -- I can't tell you -- even if I knew how many people have been prosecuted, I don't know that I can put a dollar amount on what's been saved, but it's important that many people know that law enforcement is out there and interested.

Well, I understand that but, I mean, if you're putting up --

Point of order Councilman?

Yes?

Could I get a point of information on that?

Go ahead.

The insurance fraud aspect of that, is it because they live in Philadelphia and they -- and the insured, let's say, 136 5/14/02 LAW & GOV'T - RES. 020174 in Montgomery County or in New Jersey or they live -- they have New Jersey plates but they live in Philadelphia?

I don't think they've prosecuted any of those cases, Councilman. That is insurance fraud, but they don't prosecute those cases, I don't think.

They don't, they don't?

I don't believe so.

Okay.

I'm sorry.

I guess all I was going to say was, I mean, if you're putting up a total of $8 million, you said, 2 million of which is coming to Philadelphia?

Approximately.

Okay. I just thought that -- I mean, for your $2 million, you might want to know what you're getting out of it.

Oh, we do. I just don't have the number in front of me. And I didn't mean to stop with those two programs; I just wanted to cite what we've done cooperatively with the City. 137 5/14/02 LAW & GOV'T - RES. 020174

Could you provide to the Chair the statistical analysis over the past three years of what the program has produced.

I'd be delighted to have the annual reports of the Insurance Fraud Prevention Authority sent over to Councilwoman Tasco, and we'll also --

Councilman Cohen is the chair today.

Councilman Cohen is the chair.

And I didn't mean to interrupt you. You were listing all of the ways that the solution to high insurance rates could be solved in Philadelphia. What were the rest of them?

No, I wasn't -- I wouldn't dream of holding you here to list all of the possible ways. Another way, however, is that there are many, many, many bills put in the legislature that would raise your initial rates. For example, the trial bar wants to increase the amount of insurance you have to have. We contest that every year. So far we've been successful in keeping it down. 138 5/14/02 LAW & GOV'T - RES. 020174 We fight battles on the regulatory scene. The body shops want to have you fix all vehicles with Detroit-made parts; it has a terrific profit margin on those parts. We struggle against that. That's basically what we do.

Why don't I suggest this: If you could also provide from the Federation's perspective a listing of proposals that would help reduce costs, insurance premium costs in Philadelphia, to the chair, that would be greatly appreciated. Let me just ask you a couple of other questions. I'm sure my colleagues have questions of their own. Now, do you think that my driving ability is affected by my income, my race, or my zip code?

I don't think your driving ability is affected by any one of those three.

Are any of those factors a function of what my rates are?

You mean, is your loss predictability governed -- can it be premised on any of those factors?

If that's the 139 5/14/02 LAW & GOV'T - RES. 020174 question you want to answer, yes.

Well, I've created my own question and now I wish I knew the answer. You asked about age?

No, I asked about income level, but we can talk about age.

Don't know anything about income level, don't know anything about income level.

Is that a factor in determining what rates are?

No. 13

Or what your income level is.

No. 16

Zip code?

No, no. 18 And, incidentally, it's also not a factor in the insurance credit-scoring proposal that Councilwoman Tasco raised earlier.

Zip code?

Well, the zip code, to the extent that it corresponds with rating territories, as I've said to you, insurance loss cost data is gathered territorially. So if you are in that 140 5/14/02 LAW & GOV'T - RES. 020174 territory and you're going to have a car there, the answer to your question would be yes.

Without regard to what my driving ability is or whether I've had past claims or --

No, I didn't say that. companies take into account -- I believe companies take into account -- they have good driver discounts. For example, if your driving record's bad enough, I think there's companies that will turn you down or cancel you.

Are there some companies that don't write policies in Philadelphia?

Before you answer that, let me note the presence for a long time of Councilwoman Blackwell at this hearing, a member of the committee.

Thank you.

Certainly.

Sorry to interrupt you, Councilman.

That's okay.

Why don't you repeat the question. 141 5/14/02 LAW & GOV'T - RES. 020174

I'd be glad to if I could remember what the question was. (Laughter.)

Well, the question was about redlining.

We were talking about the different factors.

Yes. Are there some companies that don't write policies in Philadelphia?

No, I don't think that's true; I think they all write policies in Philadelphia because they all participate in the assigned risk plan. I don't know that -- there may be some that -- I mean, you might have a small mutual policy out in a town in Pittsburgh, and I don't know whether they market a lot here, I don't know whether they have agents here, but I don't think anybody can just say, "I'm not going to write in Philadelphia."

Is race a factor in determining rates?

No. 23

So there's no 24 difference in the rate for a 45-year-old African- American male in Philadelphia versus a non-African- 142 5/14/02 LAW & GOV'T - RES. 020174 American 45-year-old male in Philadelphia?

I don't believe there's any difference, I don't believe there's any difference.

Should there be any difference?

Should there be any difference?

Yeah.

No, I don't think so. First of all, I don't think you would -- I think probably the Constitution prohibiting making a difference, but I don't know that there's any actuarial data from which one could presume there should be a difference. As a matter of fact, we've had a lot of discussion about that today here. I'm not so sure that the driving behavior by the uninsured is any worse than the insured. I've never seen any statistics on that, so I have to plead ignorance.

Lastly, what's the Federation's position on this issue -- there was a story just in our local papers the other day about utilizing credit checks as a way to determine what your auto insurance rates should be. What's the 143 5/14/02 LAW & GOV'T - RES. 020174 connection between the two?

Well, if you can give me one minute, I'll explain some features of that.

Go ahead.

Take two.

Okay. Believe it or not, your driving record is very poorly documented. Do you speed?

Why?

I do. Do you always get caught? Very rarely. The fact of the matter is that most elements of people's driving records is very poorly documented. What is well-documented? You got a mortgage; do you pay it on time? The fact of the matter is that the statistics on each one of us is credit dealings and the way we handle credit is extremely well-documented. Not how much money make, but how we handle credit. Do we pay our bills on time? A company in California some years ago, about ten years ago, developed a set of criterion by which they found that the loss -- your risk potential 144 5/14/02 LAW & GOV'T - RES. 020174 can be predicted with a frightening degree of accuracy by taking a certain number of small factors in your credit history to accumulate to an insurance score, and they put together a way to accumulate those numbers so that some companies in their processes began using that insurance score to help put you in a rate or underwrite your insurance.

Mr. Doubman, I mean, that's a very interesting exercise but, I mean, that would be almost like deciding that that just because Mike Schmidt maybe didn't pay some of his bills on time, he couldn't play third base for the Phillies. I mean, what does one have to do with the other? One is an ability; the other one is a responsibility.

Well, what you have to understand, though, is that all of insurance is predicated on estimating what kind of a risk someone is. If you get something that is legally cognizable, and I assume race isn't, if you have some factor that is legally cognizable and we can allocate risks better, we're ail better off if the insurance industry does that.

Yeah, like -- 145 5/14/02 LAW & GOV'T - RES. 020174

It's true in health insurance, it's true in --

-- like whether I have any accidents or like whether I file any claims. I mean, if I never touch another person's car ever -- I mean, it's interesting, you know, to ask, do you speed? do you get caught? I mean, you know, I may have parked within, you know, two inches of the curb. I mean, that might be a violation on the Pennsylvania highway test.

Well --

I mean, so what? Did I file a claim? Have I had an accident?

Well, generally speaking, the --

Those are the issues.

Generally speaking, companies are a lot interested in other things than that. For example, are you 16 years old or are you 70 years old or are you 35 years old?

Right, or am I 85?

You asked me for -- I thought you asked me for a --

Which is an 146 5/14/02 LAW & GOV'T - RES. 020174 assessment of either experience or ability.

Right.

Again, most 16-year- olds are not playing third base for the Phillies, and most 85-year-old aren't either.

Well, I don't know how far along you want to go with this Schmidt analogy, but you asked me for a very brief -- as concise and within my knowledge estimate of what credit scoring is all about, and you will undoubtedly hear a lot more about it later.

Okay.

And I tried to give you an answer to your question.

I appreciate it. Thanks. I'm done.

Can you give Representative Waters a moment?

Thank you, be glad to. STATE REPRESENTATIVE WATERS: I wanted to follow on something where Councilman Nutter was heading. And when you start talking about, you know, do I keep my insurance rates. Do I keep my insurance 147 5/14/02 LAW & GOV'T - RES. 020174 paid is one thing, but if I don't pay my credit cards or my MasterCard, how does that affect how you feel about my insurance rates? And for me, it seems as if it's another form of profiling a person. And since zip codes do come into play, that's another form of profiling because you have people who predominantly live in certain areas of the City; like where I live at, it's predominantly African-American. So if the 3-9 zip code has this rate, you profiling that 3-9 zip code. And it just so happens to be that the person that live there are of one particular race. So now -- and you have people struggling to keep up paying their bills. Unfortunately, you might have some people who fall into that same racial category, who are having a hard time paying all of their bills too, and even though they doing the best they can, unfortunately, they can't pay all their bills, but they don't want to drive their car illegally. And since they're doing everything they can to make sure they don't place other people at risk or in harm's way because they might have a fender-bender and they want to make sure that they 148 5/14/02 LAW & GOV'T - RES. 020174 have that much of theirs, they don't want to lose their home as a result of having a car accident, they make sure they pay their insurance, but they're going to say that now they're -- the fact that they didn't pay their MasterCard bill on time is going to play into -- is going to factor into how much their insurance rates are going to be. And in my opinion, I believe that one thing has nothing to do with the other; it's absolutely unfair; it's another form of profiling. And here, the insurance company is using this as another tactic to profile people, and it seems to be absurd, it seems to be another way to make sure that you can do the redlining, which is -- I know people don't like that term, but we know that it has been proved that redlining did and does exist.

Well, I don't agree with your statement that redlining exists, I don't agree that there's profiling, unless you choose to define profiling as all classification for underwriting purposes, and I reject that definition, but I understand where you're coming from. This will be a very interesting discussion as it goes on. 149 5/14/02 LAW & GOV'T - RES. 020174

Councilwoman Tasco would like to participate.