I mean, so what? Did I file a claim? Have I had an accident?
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?
Which is an 146 5/14/02 LAW & GOV'T - RES. 020174 assessment of either experience or ability.
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.
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
I want to add to what the State Rep. was saying. While you may try and cast it as a way that (inaudible/off-mic). Those people who get good credit rating may get a lower rate, but I see it as a back-door way to increase the rates for those people who don't have good credit rating. You increase their rates because they fall into that category of a of a higher risk just based on the fact that their credit is not good. And so the phantom savings to anyone with good credit would probably be much smaller than what the insurance companies would make on those people who have a poor credit rating. And so it's a good way on your behalf to talk about maybe we will get a better rate if you have good credit, but the greater harm will be to those people who don't have good credit, and most of those people tend to fall in this area that's a higher risk than all of these areas. And I agree with Mr. Waters that also, when you talk about territory, you have to define 150 5/14/02 LAW & GOV'T - RES. 020174 territory. And territory -- well, you say you don't go by zip codes, but the insurance companies identify the territory by zip codes and make -- and you find that when you look at 19139 or 19150, where I live, the rates are going to be high. And when you look at the demographics of the area, it tends to be a majority of African-Americans, as is most of Philadelphia, 50 percent, and the rates tend to be higher. I want to ask you a question about commercial insurance, 'cause earlier, it was discussed that there's a -- that the commercial companies can buy insurance by the mile. What is so different with the providing mile-based insurance to a consumer and how do the rates impact? I don't know too much about insurance, and I'm trying to ask this question off the top of my head. When it goes to their rates, how are their rates impacted in relationship to the mile-based insurance?
Well, I -- to be perfectly honest, I don't know the answer. My guess is that if you're dealing with who do you see out on the -- who are the big truckers you see out on the road, I don't 151 5/14/02 LAW & GOV'T - RES. 020174 know, even Sunoco for its fleet of tankers or somebody else that you're dealing with, I suspect the answer is, you're probably dealing with a company where you're probably saving yourself money by administering it that way, and it's only one outfit you have to deal with. Whereas, the selling of personal lines insurance, auto insurance, I should say, would involve you dealing with, you know, millions of Pennsylvanians. That would be my guess, but I don't know that for sure. Incidentally, on your other point, Councilwoman -- and I can't give you chapter and verse on this 'cause I'm just learning about this myself, but the insurance industry's official position is that actually the use of credit scores enables many more people to buy insurance than the current system, which is not purely creditworthiness, but it's how you handle your credit. But I need to learn a lot more about that myself. It doesn't have anything to do with mileage- based rates, though.
The credit scoring is just like the credit scoring in the homeownership area: It tends to lead to predatory lending and 152 5/14/02 LAW & GOV'T - RES. 020174 predatory rates.
And that is an issue I think you all need to look at, because when you begin to try and make it better for some, you end up hurting the majority.
Well, my understanding is that it doesn't work that way, but we'll undoubtedly have a chance to study that.
Mr. Doubman, you mentioned earlier that you represented car insurance companies and life insurance companies and other forms of insurance besides automobile insurance.
And you mentioned that with automobile insurance, that the State of Pennsylvania, which legislates this area and regulates this area, has 40 rating territories, roughly, roughly 40.
I think it's 40 territories, but if it were 27, don't hold me to --
That's close enough; I'm not holding you to the 40. 153 5/14/02 LAW & GOV'T - RES. 020174 My other question is, in the other forms of insurance in Pennsylvania, such as life insurance or homeowners insurance, are there the exact same rating territories?
I believe some of those forms of insurance are probably written almost on a national basis. I mean, if you buy life, I think it's almost exclusively age and health factors, and I don't think there's anything local, but I could be wrong on that, don't get me wrong, I don't --
Was there ever a time in Pennsylvania when the State government had the entire state as one rating territory for automobile insurance?
Okay. And my last question is: Do you remember the year -- I think it was in the '60s -- that Pennsylvania first required automobile insurance for liability?
Let me follow up. With Erie and Harrisburg, are there suburban areas immediately adjoining, and do they get lower rates than folks who live in Erie or Harrisburg or Pittsburgh? Are those kinds of --
I think Pittsburgh's its own rating territory, so maybe if North Hills is a suburb of that, you do better than you do in Pittsburgh. I don't know that, Councilman Cohen. You've got me curious. I'll get out what -- some information I have on rating territories. It may be, I don't know.
Well, it would seem to me that it's very unlikely, because I think it would have been used as a defense, you know, to say, Well, Philadelphia's like other cities; wherever you have cities, you have differential rates. But we would appreciate it if you could get us that information, because it seems to us in Philadelphia that we're singled out as being victims of -- or willing participants in sin and bad habits and doing everything wrong. That's not, we think, the correct picture 155 5/14/02 LAW & GOV'T - RES. 020174 of Philadelphia, 'cause we're very proud of the city, and we think we've earned good ratings, and we don't understand why anybody in Philadelphia should have to pay more than anybody in Bucks County. Why should -- you say if a Bucks County driver has an accident in Philadelphia, it's rated as a Bucks County accident?
Well, I don't know whether that makes any sense either, but it seems to me that what Mr. Kearney just said is, we think everybody, at least statewide, since the regulatory system is statewide, that everybody ought to be treated alike. Has there been any study made as to what would happen to rates if that were the case? Do we have any information? You had indicated earlier, sir, that you don't really have any objection to a statewide rating system; you said that the rating system that exists is that created by the legislature, and the legislature could have set the stage as a single rating area.
Well, the legislature is 156 5/14/02 LAW & GOV'T - RES. 020174 going to tell us how we're going to write our rates, and we accept that, and insurance is a state- regulated industry.
So that if the State decided to pass a law creating one territory -- the State of Pennsylvania, the Commonwealth of Pennsylvania as a territory -- the insurance companies could live with that?
Well, the insurance companies will do whatever the law of the state requires.
Now, I didn't say necessarily -- I don't know what -- I don't know that we've ever had a pass on that proposition among our membership or decided that. I don't think that -- I suspect our companies would not think that's a terrific idea, because you have such variation in territories. And moreover, I think -- well, I'm 62. I think my grandkids will be considering that particular proposition. I think that's a pretty tough proposition to put forward. Because what you're asking is for the 157 5/14/02 LAW & GOV'T - RES. 020174 people in the more rural, and to some degrees suburban, parts of state to subsidize an extremely high-cost reparation system that goes on here in Philadelphia. You can ask your representative and Senator Kitchen whether she thinks people in Pennsylvania are going to vote for that. If they vote for that and the legislature passes it, I suppose we'll write it, and if we don't want to write it, we'll go elsewhere.
Representative Waters, you're more qualified than I to deal with that. STATE REPRESENTATIVE WATERS: One request -- no, two. Just a couple weeks ago, we in Philadelphia passed a -- well, we started a program called "Safe Streets," and in that program, it was arresting -- it was standing out and trying to block drug activity, open-air drug activity sales from going on in Philadelphia. And we was talking with the Mayor, and he was saying how, you know, he'd like the State to send more money in to help pay for this program 'cause it was very costly, and we know that some of the other legislators that you hinted on are the legislators 158 5/14/02 LAW & GOV'T - RES. 020174 that don't like to vote on increasing more money to come to Philadelphia or something that's going to cost their county. We have someone that comes here -- 38 percent we found out, 38 percent of the open-air drug activities is from people from outside of Philadelphia, so people are coming here to make those purchases. So they are actually coming from the areas contributing to the activity that's going on here. Then you have a person coming here from Bucks County that gets into a car accident in Philadelphia, and we don't know who's at fault, but if he had an accident with a person in Philadelphia and the person in Philadelphia will be charged where?
Well, whatever it costs his garage policy would be charged to the Philadelphia rating territory in which he resides and which is where the car is presumably garaged, and the Bucks County participant would receive, for loss cost determination purposes, I guess, what it costs the insurer on his vehicle. STATE REPRESENTATIVE WATERS: Do we even have any rates or statistics on the amount of 159 5/14/02 LAW & GOV'T - RES. 020174 accidents that people from outside of the City are having here, inside of Philadelphia?
I don't know if there are any, Representative, and if there are, I don't know, and I don't know whether the Insurance Department would have that; I suspect not. STATE REPRESENTATIVE WATERS: Don't you think that would be something to be taken into consideration, that that kind of information would be good to have since you going to make rates based on areas that you know the person -- that people are having accidents here, but they don't live here, and it should be an interesting part of the information that the insurance companies collect. And, you know, like, for instance, I live in Bucks County, and I pay one rate, but now I don't want to live in Bucks County; I would like to live in Philly for my job or if I want to send my children to schools here, or for whatever reason I want to come here, but when I look at how much I'm going to pay for insurance, it's a deterrent. But I'm the same person that lives in Bucks County, but when I come here, I'm the same man, but now my rates are going to change. I got the same 160 5/14/02 LAW & GOV'T - RES. 020174 car, I drive the same way, and the only thing that's different is that now I live somewhere else, regardless of my history, my driving history.
Well, the locus of your driving is going to change. We know you're a terrific driver wherever you are, but where you drive in your vehicle is extremely important, as I have said.
Let me take the prerogative as chair for one moment. I would want the record to dispute the statement that you made as to the fact that Philadelphia would be asking for subsidy from the rural areas. On the contrary, I think the facts are clear that Philadelphia sends to the State much more money than other areas do, disproportionately higher. We also support many activities: For example, the zoos, the theaters, the Avenue of the Arts, the sports teams, all of which are supported basically by Philadelphia taxpayers, yet are benefitting the universities, the great medical establishments, the educational establishments. We don't think it's fair to say at all that Philadelphia's asking for subsidies. We think, 161 5/14/02 LAW & GOV'T - RES. 020174 on the contrary, Philadelphia does a very good job of subsidizing things on behalf of others in the state. We have a city -- when I go on vacation, you know, it's a strange thing. A lot of people from Pennsylvania attack Philadelphia, but if you ask people where they come from, you know, when you meet guests somewhere, they'll tell you proudly "Philadelphia," and then you'll find it's really King of Prussia, you know, or Chester or some other city, because people outside the local area have a very high regard for Philadelphia, and they identify with them. But whenever you talk about taxes, that's when the anti-Philadelphia picture comes. And so I don't think we're asking -- what we're asking for is basic fairness. If life insurance can be figured on a statewide basis, we think it ought to be possible to do the same for auto insurance. And we think the insurance industry has a real responsibility to work with us, not just to always say no, but to work with us to try to bring much greater elements of fairness to the system of automobile rates and to make it possible to eliminate 162 5/14/02 LAW & GOV'T - RES. 020174 the uninsured driver, because everybody gets hurt. The person hurt in the accident may be a visitor to Philadelphia from a rural area, and if it's an uninsured driver, that person gets hurt. So we think this issue is an extremely important one, and we think, instead of the Insurance Federation and the companies you represent always saying no, we would like to see much more the kind of cooperation that you are presenting today. We would like to talk much more to insurance companies and pin them down on why can't we develop a system that permits us to have folks in Philadelphia all be insured when they're driving? Councilwoman Tasco, sorry, but the Chairman has the prerogative occasionally.
Oh, I understand the prerogative of the Chair, and I appreciate that very much. And I agree with you. You know, if the insurance is based on the statewide and national, I mean, people -- we could be charged more in Philadelphia if they go to other territories because more people here die more frequently, we have more people dying than in Chester County or Bucks County 163 5/14/02 LAW & GOV'T - RES. 020174 'cause more people are here. So should we be charged more because we have more people here? I think we are penalized by living in Philadelphia because there are more people here and there may be more incidents of accidents. I'm not sure that we all trust the information that's provided by these insurance companies to get their rates raised, but that's for the State to deal with. I just have a couple of questions to ask you and then I think I'll be finished, because you did not give testimony verbatim, but we have questions based on your testimony, and I want to ask you a couple of those questions. You stated in your -- you talk about people driving 15,000 versus 10,000 miles. What studies are you relying upon when you assert that cars driven more than 15,000 per year are involved in less than cars driven less than 10,000 miles?
That's not quite the proposition I put forward. I think, Councilwoman, what I said is that there's not a linear progression. You find that accidents increase with miles driven up to about the 10,000-mile figure, and when you get above that, it doesn't continue to increase. 164 5/14/02 LAW & GOV'T - RES. 020174 I thought that was a part of that California study that I cited, but if isn't, I'll be happy to take a look and see what the basis for that statement is.
Okay. And you claim that miles-based pricing is not fair and does not accurately allocate costs. Is it your testimony that the current level of insurance premiums paid for a household's second or third car, which sits idle most of the time, is a fair and accurate way to price insurance? Are you seriously suggesting that a car that is only driven a few thousand miles a year should have insurance priced at the same as an amount of a car that is driven or 30 or 50,000 miles a 17 year? If we're insuring both cars at the same rate, 18 and one is driven less than the other; is that fair? 19
Well, I don't mean to be 20 Clintonian with you, but I'm not exactly sure what you mean by "fair." The way insurance is priced right now, I guess I would say that the pricing results in that anomaly has, nevertheless, been approved by State legislators and regulators, and it does about a good 165 5/14/02 LAW & GOV'T - RES. 020174 a job as allocating the cost as my companies could come up with. Your use of the term "fair," I suspect I would probably say that seems inequitable, and if the car's driven that little, maybe that's one of the people who is being charged more to have that extra car sitting around. Presumably somebody next door has a car sitting around that they drive 80,000 miles a year, I don't know. You have to group risks, and insurance can only be individually underwritten and priced to a certain degree. I mean, the systems are human, and they are about the best that have designed so far.
But let me ask you just one other question. You testified that the insurance industry wants to repeal mandatory insurance. Is that in your testimony?
I made a statement on that. The auto insurance industry is not a big fan of mandatory auto insurance. We've never taken a vote on it at the Federation. Several national trades would like to see it repealed because it doesn't work.
So you want people 166 5/14/02 LAW & GOV'T - RES. 020174 to have insurance by choice?
Don't get me wrong now. I didn't say we were going to go out and cut off our arms to try to get that done, but I'm saying that there are major elements in the auto insurance industry that think mandatory auto insurance -- they know it doesn't work very well, and some of them would just as soon not have those laws. This issue has not arisen in Pennsylvania, and it won't arise in Pennsylvania. But that's the statement I made, and that would be a better explanation of it probably than was in my testimony.
What we'd like for you to do is to -- we will pass on this material and testimony to our state legislators. Why you say that do you not -- would not probably oppose pricing --
What I said was that I doubt that the industry would oppose a state law that allowed insurance to offer price-based auto insurance purchasing. I can't imagine we would oppose that. 167 5/14/02 LAW & GOV'T - RES. 020174
That may be a start, right, Senator? STATE SENATOR KITCHEN: Well, personally, I think the territory itself, it is -- it is a carryover of the discrimination that Harrisburg -- that most of the legislators in Harrisburg have toward Philadelphia. Like you said, it would be very difficult, say, to get a blanket kind of cost for the entire state, but also in those territories, you have drivers that maybe do have a bad driving record, but you also -- and we're talking in the same zip code, but you also have drivers that have very good driving records; yet, given all the same make of car or same age or whatever, that good driver is still charged more than a driver who's had a number of accidents. And that does give credence that lends towards the territory and something with the zip codes.
I'm going to 168 5/14/02 LAW & GOV'T - RES. 020174 continue on. Councilman Cohen will be right back. I'm going to ask Mr. Romulo Diaz from the Law Department to come up anybody; he has a statement. Is there anyone else here to testify on this testimony? (No response.)
I think Mr. Diaz will be our last witness. (Witness comes forward.)
Thank you, Councilwoman Tasco and the members of the committee. I'm Romulo L. Diaz, Jr., Chief Deputy City Solicitor for the City of Philadelphia for Regulatory Affairs. Given the late hour, let me just summarize an already-brief statement. Essentially, you asked if we would consider the legality associated with mile-based rating plans. We believe that mile-based rates are within the discretionary authority of the Insurance Commissioner of the Commonwealth. We note that in the previous Pennsylvania case, the court affirmed 169 5/14/02 LAW & GOV'T - RES. 020174 that the Commissioner's decision not to require mileage-based rates on behalf of the Pennsylvania National Organization for Women on the basis that there was substantial evidence to support the Commissioner's finding without any determination of legal error or Constitutional violations was upheld. Thus, it is appears to us that the General Assembly has given the Commonwealth's Insurance Commissioner broad discretion to determine whether to permit or to require mile-based rates. In order to obtain mile-based rates in Philadelphia, it appears that we would need to either persuade the Commonwealth Insurance Commissioner to require or permit such rates or else to persuade the General Assembly to enact a law requiring the Commissioner to do so. That, Madam Chairperson, summarizes the testimony that I had prepared for the record.
Well, thank you for appearing today. This resolution today was not with the intent to require anyone to pass legislation. The only thing we were doing here today was having a discussion about this issue. That's why we invited 170 5/14/02 LAW & GOV'T - RES. 020174 the representatives from the Senate and the House to come to hear the testimony. And hopefully, they will further move this through the State legislature if they so choose. They know that body better than we do. We believe that Philadelphians pay a higher rate, and we believe that those of us who are elected and appointed should support and work in the interests of the people we represent and hope that we will always present an argument that helps those people achieve that goal. We certainly hope after November -- and I hate to bring politics into this -- that we change the Insurance Commissioner in Harrisburg, who will be much more sensitive to the people in the State of Pennsylvania and particularly to the people in the City of Philadelphia to explore new ideas and not to shut the door on new ideas or new thinking. When we close our eyes and our ears to new thinking, we never come out to do anything that's beneficial for the consumer. So we have to think outside of the box. And we want to Philadelphia to think outside of the box. And understand who we represent: We're here to represent we're here to 171 5/14/02 LAW & GOV'T - RES. 020174 represent the public, and that is our goal, and that is what we should be doing thinking. Thank you.
The Councilman's not here, but there being no further business, this committee stand in recess, 'cause we leave the record open to come back and have further discussion on this issue, and as we move forward, to see that maybe we can make some change. We thank all of you for taking time to come from Massachusetts; and Mr. Butler from Washington; and Ms. Miller from the Pennsylvania NOW organization and the ladies with her. Thank you for coming, and we will continue to have this discussion around this issue. Thank you very much. (Proceedings end at 1:47 p.m.) - - - 172 CERTIFICATE I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia's meeting of the Committee on Law and Government of Tuesday, May 14, 2002, are contained fully and accurately in the stenographic notes taken by me, and that this is a true and correct transcript of same. RE: Resolution No. 020174 _______________________________, Josephine Cardillo Registered Professional Reporter and Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)