One of the things, for instance, we've done, we are the outfit that funds, by state law -- we don't control it, but for instance we fund -- it is through taxes on insurance companies that the Insurance Fraud Prevention Authority is funded. That does a lot of consumer education. You've probably seen the billboards or seen the commercials. The Auto Theft Prevention Authority, again, that is funded through taxes on insurance companies. That does a lot of education in things of that nature. Different companies --
Explain to me your vision of how this market is going to change.
How I think the Philadelphia insurance market is going change? I think one way the insurance market will change and what I hope will change here is that we'll have our medical claims become consistent with the medical 130 04/22/03 - LAW & GOVERNMENT - BILL 030220 claims patterns in 66 other counties. I think one way to do that, and we recommended it to the Task Force, is to embark -- and if it's just the insurance industry embarking on it, it's not going to work. But I think the City ought to embark on a public relations campaign similar to that done on the insurance fraud prevention authority to let people know that their claims patterns affect theirs and their neighbors' rates. We made that recommendation to the Task Force on several occasions.
We made that recommendation over three years ago, Councilman.
Obviously, I can't be here today and say "Here, there's X amount of dollars." I can tell you --
This is your vision for how the Philadelphia market is going to change. 131 04/22/03 - LAW & GOVERNMENT - BILL 030220 I'm here right now to listen your vision on how the Philadelphia market is going to change.
I think that in terms of consumer education -- I think that the best way to change claims patterns is through consumer education. And I think that that is a cornerstone that has been missing in the City to date. And, yes, we share part of the blame in that. We probably haven't done a great job of educating the Philadelphia consumers. I don't know that we've done anything different here than we've done elsewhere. That's really the responsibility of individual companies in their marketing practices. And maybe the Insurance Department hasn't been Philadelphia specific enough in terms of its outreach program. That's a matter for the Department to take up. I know it's done a fair amount about it. It has one of its offices here. But to give you an example in terms of funding for public awareness campaigns, I think the budget for the Insurance Fraud Prevention Authority is $8 million a year. Some of that goes to law enforcement, but some of that goes to public education. I think the budget for the auto theft 132 04/22/03 - LAW & GOVERNMENT - BILL 030220 prevention authority is $4 million a year. Again, much of that goes to law enforcement, but some of it goes to public education.
But you're not willing to concede yet that it's the failure of your industry in its efforts toward consumer education to change this market that local government has to step in?
I think local government and the insurance industry and the world of consumer education here have to work together.
And what again do you think is inappropriate about this legislation?
I think that the problem with this legislation, as I mentioned, we support it to the extent -- as I said at the outset, we support it to the extent that it addresses consumer education, things of that nature. Maybe I misread it or it just didn't come across to me --
You essentially suggested that it should happen in the private sector or a different level of government because local government didn't know how to organize around its effort, didn't understand the role and function 133 04/22/03 - LAW & GOVERNMENT - BILL 030220 of state government, and all we wanted to do was sue and change underwriting criteria and we were setting up for lobbying purposes. That's pretty much what you said.
Let me go to my remarks. I said, for instance in the proposal in calling for consumer education in Philadelphia-specific guidelines, I thought that was a good thing. I'd also say I don't know that you need a separate office to do that. I think you can do that right now. I think the Mayor's Office can do that right now. We certainly felt that because we made that recommendation to the Mayor's Auto Task Force, the first version of it, three years ago. And I'm happy to share that document --
Are you suggesting that it can be through Executive Order rather than through legislation?
I actually think some of the consumer education plans -- we had thought that that would have been part of the Task Force's efforts to date. But I think that certainly a consumer education plan -- and we'll work with the City on it. 134 04/22/03 - LAW & GOVERNMENT - BILL 030220
But there's no 3 particular problem with it being done through legislation versus Executive Order?
If the City wants to do legislation on consumer education, the City can do it by legislation.
Thank you, Mr. Marshall, for coming here. And I will admit that unlike the Insurance Commissioner who has received two invitations and chose to ignore these hearings, you have been both of them, and I do appreciate that. Councilman Goode's questions about your suggestions that we spoke about at the last hearing as well, that one of the reasons the insurance rates are as high as they are in Philadelphia is because of the claims and all. But we did get into testimony to last hearing, and I'm trying to 135 04/22/03 - LAW & GOVERNMENT - BILL 030220 hurriedly go through this report when this report was done that insurance claims have actually gone down significantly in Philadelphia while in the suburban counties they have gone up. Auto theft has gone down dramatically in the City of Philadelphia. We're a national model, I understand, for the way we're able to recover automobiles that have been stolen. Claims are down. The tort insurance that the industry suggests that we look at, and many people have opted for it in the City of Philadelphia. It was supposed to bring rates down by somewhere in the vicinity of percent. And as 14 my legislative assistant points out over, two-thirds 15 of insurance careers, automobile carriers have opted for tort insurance. The Live Stop program, well over 20,000 vehicles have been removed from the streets that were formerly being driven by uninsured motorist as a result of the Live Stop program. In addition to taking those cars off the street, thousands and thousands of more people in Philadelphia are now legally licensed drivers. We have done, I think, an outstanding job in the City over the last several years to address some of those things. Albeit, 136 04/22/03 - LAW & GOVERNMENT - BILL 030220 there may be some folks out there who think if they get tapped in the bumper they hit the lottery. But I don't think that's just unique to Philadelphia. And again, if the claims numbers that are in this report are accurate, even enclose to being accurate, I think that those arguments are no longer as valid as they were maybe five, seven years ago.
Councilman, as I tried to say to Councilman Goode, probably on the PR -- and I don't mean PR in a puff way, I mean it in a public education way. Probably in that end, we're not as good as we should be because the points that you make about the things that have been done in Philadelphia to reduce costs are true. By the same token, rate reduction in Philadelphia has occurred. I know last time we talked about your own individual auto rates, and I'm still going to find out who your insurer is and I want to take a look at it.
Well, okay, then I'll take a look at that. We did a survey of our eight biggest writers. And while there are deviations in it -- and we shared the information with Council or 137 04/22/03 - LAW & GOVERNMENT - BILL 030220 with the Auto Task Force on several occasions. Comparing 1995 to 2002, rates in Philadelphia have gone down for a number of the carriers. Not all carriers because not all carriers are going to be the same. And now that I hear what company you're with, just for you I'll identify where your company is on that list because Macy's doesn't like Gimbles to know everything. We just did it by letters. But I'll identify which letter stand for the good hands people. And I know their rates have gone up in the City. Other carriers, their rates have gone down, and it's become a competitive marketplace. If you go back to 10 years ago, it was very hard to find a voluntary market in Philadelphia. Now, people advertise insurance on the side of a bus. So it is a better market. I think one of the things that the -- the difficulty is, somebody says here in the last seven years our rates have dropped 10 percent so they've gone from 2,000 to 1800. When you compare it with Pittsburgh and the rate is $800, you still say, "That's too much. How can we get to be like Pittsburgh?" Yes, the number of medical claims have gone down in Philadelphia from where they were in 10 138 04/22/03 - LAW & GOVERNMENT - BILL 030220 years ago. They are still double or four times as much as they are in other parts of the Commonwealth. And that's why the rates are so much higher.
How does that compare to what the settlements are? If the claims have gone down but you said they are still higher than other parts of the Commonwealth, is it not also in this report, if I recall correctly, that the value of the settlements have done down as well?
Individual settlements, no. As a matter of fact, one of the things you find, property damage, how much property damage in a given accident. That's actually pretty consistent, Philadelphia through the rest of the state. A little higher in Philadelphia, but it's actually relatively consistent. It's the number of medical claims you get per hundred rather than the amount of the individual claims that is more the cost driver. We do see severity going up. Some carriers have noted in their own books of business the medical severity in each claim has gone up a bit in the recent last couple of years. But overall, the driving force is the number of medical claims in Philadelphia compared with the rest of the state. 139 04/22/03 - LAW & GOVERNMENT - BILL 030220 The amount paid out on those medical claims, are there differences? Yes. And it's going to vary carrier to carrier. But it's not the amount that's paid out on each claim that is the driving force, it's the total amount of medical claims that is the real problem.
Councilman DiCicco, since you've got the floor on a point of order, I'm going to return to Councilman Rizzo first and then Councilman Nutter and then yourself, all right?
Mr. Marshall, again, thanks for your time here. Are there some things that consumers need to learn? Is there any disadvantage in switching companies? I've been with the same company since I've started to drive. And I haven't switched ever because I feel as though I'm going to give something up for all the good driving record that I've had throughout the years. Are there things that your industry can do to kind of -- is there flyers or 140 04/22/03 - LAW & GOVERNMENT - BILL 030220 whatever we can learn some things not to do. Can you answer the question? I've been locked in with a company for a lot of years. Is there any advantage? You just taught me some that maybe my company's higher than some others. Should I go out and shop? And do I give anything up when I switch?
Individual companies may not always encourage you to shop any more than Wawa tells you the hoagies are great over at the AM Mini-Mart. But we always encourage consumers to shop around. We, as an industry encourage that. The one thing I would -- I'll give you one piece of advise and give it to anybody in terms of shopping around. Don't drop what you now have until you're sure pf what you're going to get. Sometimes somebody will say, "Well, I'm insured by Company A and I just got a flyer from Company B that suggests that I might be able to get auto rates that are 15 percent less." You might be. Make sure that you have a guarantee that Company B is going to take you on before you abandon Company A.
In other words, don't cancel until you're already signed up. But what about my point about having a relationship with a 141 04/22/03 - LAW & GOVERNMENT - BILL 030220 company for a long time and these credits they give you for good driving; that counts.
And that's why shopping around doesn't mean leaving; it means shopping around. It means being a savvy consumer on an annual basis. Certainly, if you're satisfied with the rate you're paying and you're satisfied with the service you're paying, and you may have other lines of coverage. You may have your homeowner, your life, it could be any number of things, some sort of an umbrella policy. Those are all reasons to stay right where you are. Again, that goes to consumer education. I may not think ot has to be institutionalized because I think that -- it's a same that the Commissioner isn't here because I think there's a lot about state regulation that maybe people in Philadelphia don't know. Frankly, some of us who come down from Harrisburg don't necessarily know that goes on in Philadelphia City government. So I'm here to learn. I don't mean to be an arrogant student because I am here as a student as much as I am somebody to share our views.
Excuse me, Councilman 142 04/22/03 - LAW & GOVERNMENT - BILL 030220 Rizzo, for a minute, just to clarify on thing in my own point of order. Is there anything that makes you do this by counties? Couldn't you adopt a statewide program on rates?
Yes. You know what, you could have statewide rates. And I think --
Then why do adopt the county rate? Because you think Philadelphia could be more easily pummeled? They'd be more eager to accept something and not question it? Why do you have a county rate?
Actually, you make an interesting point. In fact, if you look at it that way, is Philadelphia more easily pummeled and are they more accepting? Frankly, no other municipality in Pennsylvania has as a aggressive a local City Council or municipal council as Philadelphia does. No other county in the Commonwealth of Pennsylvania has as aggressive and well-healed and well-connected a plaintiff's bar as Philadelphia does. No other county in Pennsylvania has as aggressive a media center as Philadelphia does. And no other county in Pennsylvania has as large a delegation in the General Assembly as Philadelphia does. So we don't 143 04/22/03 - LAW & GOVERNMENT - BILL 030220 support county rates because "Gee whiz, out in Philadelphia they won't even be aware of it." This is probably the most aware county in all of Pennsylvania. The reason you have geographic differences -- and it isn't by county. In fact, I think for most insurers, you'll even have within Philadelphia different territories. It's generally two or three territories. You don't have the same rate in Montgomery County that you do in Allegheny County, for instance.
And the reason you don't is because what insurance -- everybody says insurance about grouping risks. Insurance is about grouping similar risks. The person who lives in Warren County way out in western Pennsylvania presence a different risk and a different cost than does the person who lives in Philadelphia. The person who drives on some country road presents a far different risk that the guy who drives down Roosevelt Boulevard every morning. We can talk about that, but territorial variations are very common in rates. It's the same reason that housing 144 04/22/03 - LAW & GOVERNMENT - BILL 030220 doesn't cost the same in Philadelphia as it does out in Punxsutawney. Housing cost more here. Your house is worth more if Philadelphia than it is in Punxsutawney.
But it usually is not. Houses are usually not worth more in Philadelphia.
You might be comparing Philadelphia with, say the Main Line or some of the immediate suburbs.
But isn't that an arbitrary selection? You can always pick certain factors to say why you're choosing a particular method. But it seems to me insurance is aimed at evening out differences that exists, and that's the reason you have insurance, because you know this person may be a high risk, that person may be a never risk. Now, you don't say that a person whose never had an accident and no member of his family ever had an accident, therefore, will get a very low rate. If you give the safe drivers insurance, it's a tiny little fraction, nothing very significant. So you don't, in fact, just go -- what you seem to do here is use a different method than the whole 145 04/22/03 - LAW & GOVERNMENT - BILL 030220 basis of insurance, which is to average out costs. I realize some people will be more expensive than others.
I actually have to leave. I wanted to leave my vote in favor of all bills and resolutions, any amendments proposed by the sponsors.
Okay, thank you. I'm just wondering why you picked this method, why you don't use the basic insurance method of averaging out differences that exists over as wide a territory as is possible? You seem to pick narrow territories.
Actually, Councilman Cohen, in the world of insurance, insurance is about grouping similar risks. It's not about having a low risk subsidize a high risk. You mention that you thought somebody with an unblemished record doesn't get a large enough discount. Frankly, I'll tell you, you talk to somebody who gets in an accident or has a couple 146 04/22/03 - LAW & GOVERNMENT - BILL 030220 of speeding tickets and he says, "God almighty, I got hit with a percent surcharge." We are about 4 the grouping of risks and it is shown county level 5 makes some source because the Courts of Common 6 Please where you bring lawsuits are county based. 7 And Philadelphia County Court of Common Pleas 8 produce significantly different results in, say, 9 Allegheny County Court of Common Pleas. 10 We can argue about territorial rating. 11 Certainly, in Philadelphia Philadelphians would be 12 big winners if you had just one statewide territory. 13 But people who live everywhere else in Pennsylvania 14 would be big losers, and what they would say is that 15 they are subsidizing dramatically different claims 16 behavior on the part of people if Philadelphia. 17
Well, insurance is a 18 method of subsidizing by some people -- isn't it a 19 method of spreading risk? 20
Insurance is a method of 21 grouping similar risks. It is not a method of 22 having high-risk people getting subsidized by 23 low-risk people. That is not what it's for. That's 24 why if you smoke, you don't get the same rate on a 25 life insurance policy as if you don't smoke. 147 04/22/03 - LAW & GOVERNMENT - BILL 030220
Seems to me that insurance companies selectively pick that form of calculation which yields the great profit, and that's what I'm concerned about. But we're not going to settle it right now, so I'm going to go back to Councilman Rizzo. But I just leave you my observation, and along the way if you have some evidence to the contrary, I'd hear it.
Let me leave you with one as well, Councilman. Some of what you say, if it was a monopoly, if there was only one insurer, I'd almost be inclined to agree with you. But where you have a competitive market, yes insurers are motivated by profit. If they don't make a profit, they're called insolvent,and that's a real problem. But, yes, insurance companies have to make a profit. If you have a competitive marketplace, which we do in the auto market in Philadelphia and we have it even more competitive in other parts of the state. But if you have a competitive marketplace, I think that market competition is probably the best way -- and it's regulated market competition. But I think that's the best way of getting savings to consumers. 148 04/22/03 - LAW & GOVERNMENT - BILL 030220 The education aspect, market competition helps. But again, as I hope Councilman Goode understood by the end, I'm in favor of the City getting involved in form of consumer education, and I think we have something to add to its efforts. I welcome the chance to do that.
Thank you. You led me to something I read recently. I think the insurance industry has a responsibility to manage insurance. I'll give you an example. I read this article where many people list their vehicles as pleasure only, maximum 7500 miles a year. People put 35, 45, 50,000 miles on that vehicle. You would think that you could get sophisticated enough -- the vehicle is inspected every year. So why should I have to subsidize a person that says they're using their vehicle for pleasure only and the policy limits it to 7500 miles, they put 30,000 miles on the car, have an accident. The insurance industry does nothing about it. The car could have 80,000 miles on it and no 24 ramification. So my point being you would think the information they provide better match. I read an 149 04/22/03 - LAW & GOVERNMENT - BILL 030220 article that that's a common practice. Do you have a comment why the insurance companies don't do a better job at managing their business?
My comment in the first place would be I represent the insurance industry. In the first of place, I've got to say, look, I think insurers do a better job of managing their business than a lot of people realize. One of the things they find is that particularly long-time policyholders are pretty honest. What you point out the person who says, I only drive -- and we all know, we've all probably been there at some point in our lives. "Yeah, I don't drive to work; I take the train to work." And all of sudden at the end of the year you realize, you know what, I haven't been on the train in eight months. They try to verify that. You spoke about your own insurer. I can speak about mine. I received a form trying to verify some information as to how I and my wife are using our cars. I didn't get it in. They actually called our house and spoke to my wife and did the checking on it. Can you send somebody out every time; that gets a little bit dicey. Can you have the state auto inspection places check it; that also gets a little 150 04/22/03 - LAW & GOVERNMENT - BILL 030220 dicey. But they're doing more and more to verify the information that their policyholders give them. Some of it's a business question. How much do you really want to accuse your own policyholder of potentially --
But you're rating a customer based on the information that they provide. If they're saying their exposure is limited to 7500 miles a year --
May I interrupt for second please. Mr. Chairman, I have to leave for a few --
Councilman Rizzo, could we recess the public hearing and have a public meeting and then go back to questions? Because I think there's been enough testimony on subjects that the Council, I gather, has formed a judgment and I would like to have that judgement expressed here by personal votes so there's no question as to what the vote is. And then go back to this dialog, which I'm sure is going to continue over time, because we've got to solve it one way or the other. Either Mr. Marshall is right or he's wrong, or we're right or we're wrong, but ultimately the one thing I take 151 04/22/03 - LAW & GOVERNMENT - BILL 030220 from what Mr. Marshall says and we agree is is there's got to be enough discourse so we come to some general agreement. And the proposals here, I think, are steps to that general agreement even if somebody doesn't agree on them. So if it's agreeable I would like to recess the public hearing and go into a public meeting. We have a quorum here for public meeting. (Council recessed.) 152 COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC MEETING COMMITTEE ON LAW AND GOVERNMENT - - - Tuesday, April 22, 2003 - - - Public Meeting conducted by the Committee on Law and Government, held in Room 696, City Hall, Philadelphia, Pennsylvania, on the above date, to consider action on the following: BILLS 030115, 030178; RESOLUTIONS 030119, 030189. - - - PRESENT: COUNCILMAN DAVID COHEN COUNCILMAN ANGEL ORTIZ COUNCILMAN DARRELL CLARKE COUNCILMAN MICHAEL NUTTER COUNCILMAN FRANK RIZZO - - - 153 04/22/03 - LAW & GOVERNMENT - PUBLIC MEETING
Mr. Kearny, on the first bill and resolution, is there an amendment?
Mr. Gordon who is here is on my witness list will be able to testify today on this matter. Councilman Ortiz has to leave and I'd rather have a personal quorum here rather than have quorums based upon people leaving their votes. Councilman Goode has left his vote. We'll count that one, but while we have a full life quorum, let's do the voting. Now, is there an amendment to be offered on THE bill and resolution, Mr. Kearney?
Mr. Chairman, yes, there is. There is a proposed amendment to Bill 030189 and there's also a proposed amendment to the corresponding Resolution 030 -- they're both numbered the same and they shouldn't be. It's going to be corrected in just a second.
Let's move to the second bill. Is an amendment going to be offered? We're now dealing with Bill No. -- Councilman DiCicco. 154 04/22/03 - LAW & GOVERNMENT - PUBLIC MEETING
I have a proposed amendment to Resolution No. 030231. All members of this Committee have received a copy. I would move for the adoption of that amendment. (Duly seconded.)
The amendment is to Section 3-405, Insurance Public Advocate. It reads as follows: "The Insurance Public Advocate shall serve for a term of five years and may be removed by the Mayor prior to the expiration of a term only for cause. Before the Insurance Policy Advocate is removed, the Insurance Public Advocate must be provided with a written statement of the reasons for removal and shall be given the opportunity for a hearing before the Mayor." And on under Chapter 6, insert in Section 4-900, Paragraph C, insert after the sentence "notwithstanding any other provision of this Charter to the contrary, the Insurance Public 155 04/22/03 - LAW & GOVERNMENT - PUBLIC MEETING Advocate may at his or her discretion" insert "and subject to the availability of appropriations."
If not, those in favor of the amendment, please say aye. (Aye.)
The ayes have it and the amendment is adopted. Councilman DiCicco, will you present your motion with respect to amended bill.
Thank you, Mr. Chair. I move that Resolution No. 030231, as amended, be reported out of this Committee with a favorable recommendation, and a further recommendation that the Rules of Council be suspended. (Duly seconded.)
Any discussion? 156 04/22/03 - LAW & GOVERNMENT - PUBLIC MEETING (No response.)
The ayes have it, it's so ordered. Do you have a motion with respect to the bill?
I move that Bill 13 No. 030220 be reported out of this Committee with a favorable recommendation, and a further recommendation that the Rules of Council be suspended. (Duly seconded.)
The ayes have it and 157 04/22/03 - LAW & GOVERNMENT - PUBLIC MEETING the bill is adopted. Now, we're going to revert back to the first bill that was heard today. Are we dealing with the bill or the resolution?
Mr. Chairman, we're dealing with a proposed amendment to Bill 030178. It revises Section 2 to read as follows: In Section 2 where it says "shall Section 5-300 of the Philadelphia Home Rule Charter be amended to declare that" and it adds the word "because health care is an essential safeguard of human life and dignity" and then it strikes "and that" the City of Philadelphia and then it strikes "is obliged to ensure that every resident is able to realize this fundal right and to require the." And then it continues with "Health Department" strikes the word "to," adds the word "shall," and then finishes with "prepare a final for universal health care that permits everyone in the City of Philadelphia to obtain decent health care."
I make a motion that to support the amendment to Bill No. 030178. 158 04/22/03 - LAW & GOVERNMENT - PUBLIC MEETING (Duly seconded.)
The ayes have it, the bill is so amended. Now, with respect to a motion for the amended bill.
I move that Bill 15 No. 030178, as amended, be reported out of this Committee with a favorable recommendation, and a further recommendation that the Rules of Council be suspended. (Duly seconded.)
Any opposition? 159 04/22/03 - LAW & GOVERNMENT - PUBLIC MEETING (No response.)
The ayes have it, and the bill, as amended, is reported out and with the suspension of the rules. Now with respect to the accompanying resolution.
Mr. Chairman, there's a proposed amendment to Resolution 030189. The text of the Charter change amendment shall read as follows: Article 5, Chapter 3, Department of Public Health and its departmental boards, Section 5-300, functions. Add Subsection F to read as follows: F Health Care Plan. Add the word "because" health care is an essential safeguard of the human life and dignity, and then strike everything to the end of that sentence, from "and there" all the way to "fundamental right." And then start with a capital T, "The department" and it reads the same all the way to the end of that paragraph.
Is there a motion with respect the amendment to the resolution?
I move for the adoption of the amendments to Resolution No. 030189. (Duly seconded.) 160 04/22/03 - LAW & GOVERNMENT - PUBLIC MEETING
If not, those in favor of the amendment will say aye. (Aye.)
The ayes have it, and the resolution is so amended. Councilman DiCicco is recognized for the purpose of a motion on the amended resolution.
Thank you, Mr. Chair. I move that Resolution No. 030189, as amended, be reported out of this Committee with a favorable recommendation, and a further recommendation that the Rules of Council be suspended. (Duly seconded.)
Hearing no call for discussion, all those in favor of the amended resolution please say aye. 161 04/22/03 - LAW & GOVERNMENT - PUBLIC MEETING (Aye.)
The ayes have, and the resolution, as amended, will be reported out with a favorable recommendation with a suspension of the rules. The public meeting is now concluded and we're going back to the hearing. - - - 162 04/22/03 - LAW & GOVERNMENT - BILL 030220 (Public hearing on resumed.)
Thank you. I'm just going to finish up. I honestly, Mr. Marshall, don't believe that that is really tricky. I'm sure that if the insurance industry wanted to know, that an arrangement with PennDOT could gather the information with a computer disc on VIN numbers that they provide to PennDOT, if they really wanted to know. So I'm not convinced that that's meddling or that's going beyond what the company should know. If you're charging me for certain amount of exposure and I'm exposing the company beyond what I'm paying for, I don't think that's proper.
And understand, companies do verify some of the those things. And you made reference to some of the PennDOT data. Companies do verify that. They will periodically check and pull your driving record and the information on PennDOT. And as you know, every year when you get your annual renewal from PennDOT, you have to say what your speedometer reads and says you don't need tell them the tenths, and they check on that. They do more 163 04/22/03 - LAW & GOVERNMENT - BILL 030220 than somebody thinks. It's got to be publicly available information and all that. They do do more of that verification, I suspect, than you might be aware of.
When Councilman Cohen talked about countywide, the you mentioned something that I just received a mailing into my community indicating that because I live in the northwest that my insurance rates are less than in other places. And this one particular company was hitting that as sales pitch that because I lived in a particular Zip code that my insurance would be less possibly with that company. I think that people should be able to get insurance. And I understand that they're exposing the company even before the first accident. But some of the numbers that I hear some of the my friends that have younger drivers -- it's just incredible what they're paying and they've had no 20 accidents at that point, just based on the potential exposure. Even if that could be addressed going forward, the issue of what people have to pay before they've even had the first fender bender. But I understand that that first one could be very expensive to the insurance based on the liability 164 04/22/03 - LAW & GOVERNMENT - BILL 030220 that the company has. Just to finish up, I had a friend of mine jus recently retire and he thought he was doing a smart thing, he moved all of his insurance to his vacation home. And when he got his first insurance bill, on a barrier island, it was more than here and he was shocked that his insurance in New Jersey at the same company went up instead of coming down.
Well, I'm never sure why somebody thinks living on a barrier island is exactly -- why that would be for certain forms of insurance low cost. But it does point to -- yes, is there more to be done in Philadelphia versus the rest of Pennsylvania; yes. It's one cautionary tale that we have whenever I say -- I'm not saying don't regulate. I'm saying regulate efficiently and effectively because you need only go a few miles to the east and see a really bad insurance marketplace. And that's what New Jersey is.
Well, I'm saying manager effectively and make sure that the bills that you send to the customers are appropriate for the insurance coverage that you provide.
I would note one of the 165 04/22/03 - LAW & GOVERNMENT - BILL 030220 things that you pointed out about geographic distinctions in your district. It is the case where you have a competitive marketplace. You want insurers making distinctions so that they can offer lower rates. You don't want everybody doing everything exactly the same all the time or else you're just going to have one rate and then just say, here, let the State take over the whole thing. If you believe in the private marketplace as an effective and efficient means of delivering coverage, and I think it is, I think you want there to be competition and you want to be those types of distinctions. To the extent the City wants to get involved in regulating the insurance industry, I just caution you, don't turn Philadelphia into New Jersey. Turn Philadelphia into the rest of the state, don't turn it into New Jersey. And my concern is setting up an office that, frankly, goes east rather than west in what the results are.
Thank you. Thank you, Mr. Marshall thank you Mr. Chairman.
Mr. Chairman, if I 166 04/22/03 - LAW & GOVERNMENT - BILL 030220 can just make a personal request. I know Mr. Marshall has been with us on a couple of occasions. He has a tremendous amount of information to share, and I do have a few questions to ask him. But I wanted to ask point of personal privilege, if I could ask the Chair to allow a Philadelphia resident and constituent to give his testimony, which he is willing to limit to some extent. He has a written testimony, as well, which we can incorporate into the record. But if we could hear from him and then I could subsequently have an opportunity to ask Mr. Marshall some questions, if he would accommodate us in that way. I'd just like to be able to get the citizen on then he can go and do what citizens do. Thank you.
Mr. Marshall, will you be good enough to yield for a few minutes. We'll have Mr. Gordon and then you will come back?
It's incredible testimony here today. We may have scored a massive 167 04/22/03 - LAW & GOVERNMENT - BILL 030220 victory for the citizens of Philadelphia. Mr. Gordon, please identify yourself for the record and spell your last name and then proceed. Councilman Nutter, I'm going to ask you to Chair.
Good afternoon everyone. Thanks for hanging with me, Councilman Nutter, Councilman DiCicco, Councilman Cohen, Rizzo and Verna. My name is Dan Gordon, and I'm long-time resident of Philadelphia and a small business owner. I do not sit here representing any special interest group. I'm just committed to this City and I want what is best for its residents. I'm not an expert on insurance. I cannot supply you with statistics relating to the insurance industry here in Philadelphia. I can only report what I see before my very eyes and have experienced personally in my 16 years in the City. What I've observed is an environment where abuse of the tort system abounds, where the consequences of abuse are truly damaging. My business is property management. As a landlord and as a private citizen, I've been a subjected to a number of cases of tort abuse. 168 04/22/03 - LAW & GOVERNMENT - BILL 030220 To illustrate my point, one case in particular sticks out in my memory of two tenants who filed liability claims after they've been notified that they were being evicted. Although the claims were clearly a case of individuals working the system, my insurance company settled the cases and then notified me a few months later that my insurance policy was being canceled. It provided little consolation a few months later when I happened upon an FBI agent at the door of the apartment building. The FBI agent was asking the whereabouts of one of the two evicted tenants because he was wanted for questioning in a landry list of offenses, including fraud. The cost of all types of insurance in Philadelphia is high. Even obtaining insurance can be difficult. If these problems can be alleviated, I support the creation of an Insurance Advocate for the City. However, I only support the creation of such an advocate if that person investigates all aspects of the insurance problem. I find it troubling that the insurance rates have not gone down proportionally with the reduction of claims in the City. Certainly, this is 169 04/22/03 - LAW & GOVERNMENT - BILL 030220 a trend that must be investigated. But it's critical that the Insurance Advocate investigate all factors and entities which contribute to the high rates and limited availability of insurance. So much of the criticism by government officials over high premiums have focused on the insurance companies alone. I am sure substantial criticism is justified, however, there's been little call by government officials to scrutinize the pervasive tort claims which have been such a contributing factor to the high insurance rates in Philadelphia. I've raised the issue of tort abuse and it's damaging consequences with a number of elected officials. The response has been a shrug or silence. After attending a number of political fund raisers and scanning lists of campaign contributors, I soon understood this silence. The personal injury lawyers and the American Trial Lawyers Association are high on the list of financial supporters for area elected officials, especially Democrats. As a Democrat myself, I find it frustrating that the personal injury lawyers was such an integral factor to the insurance problems facing the City have 170 04/22/03 - LAW & GOVERNMENT - BILL 030220 apparently purchased immunity from criticism. I have a very high respect for many of our City elected officials, many of you are hard-working and concerned about the well-being of the City. In addition, tort reform should not be a shield for the rich nor should it prevent recovery for genuinely injured people. However, the consequences of tort abuse are so widespread that they call out for attention. As insurance rates skyrocket, those who abuse the system oppose the cost on, not just the insurance companies, but all of us. We pay for it every day in the higher public transportation costs. We see it every week in reduced paychecks due to greater deductions for Workers' Compensation.
We pay it annually like a tax in higher auto and homeowners insurance. Now we are feeling it in reduced availability of health care. We need an insurance advocate, not just to lobby insurance companies for lower rates, but also to lobby the legal community for stronger controls and oversight of legal torts. We need an advocate to represent residents, homeowners and business owners who have been subjected to tort 171 04/22/03 - LAW & GOVERNMENT - BILL 030220 abuse, as well as increased insurance rates. Elected officials have thus far focused exclusively on insurance companies for being responsible for the current high rates paid by City residents. Before making the insurance companies the sole culprit, I wish to ask two questions: If the insurance companies are making such a profit on Philadelphia premiums, why are these companies not knocking down the doors in the City to underwrite insurance? And why did I receive a letter last week from my insurance 1company saying that it filed for bankruptcy and would not be able to insure my apartment buildings past May 11? As I mentioned before, I've lived in Philadelphia for 16 years. With the exception of getting sued, I love this City. I wince when I see people leave the City, often taking their jobs with them to compound the suburban sprawl. I would like to see an environment created where residents and businesses want to locate in Philadelphia. Thanks very much for your time and giving me this opportunity to talk to you.
Thank you, Mr. Gordon. First, I know the Chairman will have your 172 04/22/03 - LAW & GOVERNMENT - BILL 030220 full testimony attached to this record as if the entire testimony had been read into the record. Secondly, you make a number of very important points and also point out, quite frankly, some of the ridiculousness with the entire situation. I did ask Councilman DiCicco about the question that you raised. I'm sure he can answer this particular question. But it is certainly my understanding, and I agree with you, that we want the Insurance Advocate to look at all aspects of the insurance issue or problem here in Philadelphia. And actually, many of the points that you raised, I will be raising with the gentleman from the Insurance Federation about the claims issue and what kinds of things can be done to help lessen the impact of what is generally seen as a fairly litigious environment here in Philadelphia. We are certainly well known for having -- it's a high compliment, to be called, I think, a Philadelphia lawyer, but one of the problems in Philadelphia is, I think, we have a lot a lawyers. And a fair amount of that work results in everyone having a case, because that's one of the new-found ways to riches. But you're right, we all end of paying when someone 173 04/22/03 - LAW & GOVERNMENT - BILL 030220 has a case that may not have the most merit in the world. So thank you for your testimony. I don't have any questions. Councilman DiCicco.
Thank you. I just have one question. Thank you Mr. Gordon. You mentioned that your current insurance company has filed for bankruptcy. Have you been able to get insurance from another company to date?
Well, I talked to my insurance agent last week, and he said that he would be hot on the case. I wanted to call him this week, but, unfortunately, I was preparing this testimony. So tomorrow morning, my first call will be to him. I suspect I'll be able to get the insurance. A few years ago, for landlords insurance, there were very few companies writing it. I think the situation's improved a bit, but the one thing I am nervous about, I wouldn't be surprised if the rate doesn't up a lot.
So that's going to be my 174 04/22/03 - LAW & GOVERNMENT - BILL 030220 first call tomorrow is to find out am I in business or out. But I think it will work out. Thank you very much, Councilman DiCicco, Councilman Nutter.
Mr. Marshall, a somewhat different tact for me. First, while I would normally drag any witness through sentence by sentence, paragraph by paragraph of their testimony from beginning to the end, I'm actually going to do something a little different.
I think your advocacy work out in the hall may actually point out the need here in Philadelphia as the largest marketplace for this kind of advocate because there is a great need for consumer information and education. This is the kind of issue where certainly one party could see it as a detriment and another party could see it as a benefit. And I'd 175 04/22/03 - LAW & GOVERNMENT - BILL 030220 like to go through some of that. What I'm going to do is actually go to the last page of your many testimony and work back from there. Your testimony is that for all the efforts that have taken place so far, working together is the one that hasn't been tried and maybe it is time to do this. And I agree with that statement. And I'd like to start with the premise that we should be working together. We should be exchanging ideas. We should be trying to educate the various -- I don't want to say sides, but the certainly the various constituencies on these issues, because in every one of these hearings I've certainly learned something additional and I would hope and think that my colleagues have as well. What I do want to say, though, on the particular matter of the Insurance Advocate and while you may at moment see that as another attempt by Philadelphia to create an adversarial environment, I think the Insurance Advocate can be for us whatever we want the Insurance Advocate to be. Now, certainly, we would like rates to go down. 176 04/22/03 - LAW & GOVERNMENT - BILL 030220 But I think the consumer information and education component to some extent is either being overlooked or ignored and that we would do a disservice both to the office, to the industry, and certainly most importantly to the consumers if we only emphasize the one component of this insurance rates versus the other very important component, which is consumer information and education, and how do you get a lower rate and how do you shop around and why does the industry do what it does, and how do those rates get set. So I'd like to take this from a slightly different perspective. The reality is that at least the of us, and I would tend to say that probably 16 the Mayor as well, we don't have necessarily the 17 time, the personnel, or the expertise to pay that much attention to insurance, in addition to the fact that we don't regulate it, we're just subject to whatever comes to us from Harrisburg. So I think that the City and its citizens could benefit from an Insurance Advocate similar to the type of advocacy work that we have being done on behalf of consumers over on PGW issues. This does not have to be a knock-down, drag-out fight. And so I think in this 177 04/22/03 - LAW & GOVERNMENT - BILL 030220 environment where one side has possibly all the information, the other side has limited information or has whispered down the lane or has anecdotal information, we could spend our time fighting about stuff or we could spend our time educating each other about our concerns. So I'd like to ask, one, if you would rethink for the moment the industry's perspective on this issue. Whether we have an advocate or not, it doesn't cost the insurance industry anything. I mean, it's a municipal government function just like you're probably not too concerned as to how many police officers we have or sanitation workers we have or how many people work in Fairmount Park. It may give us someone who an pay a little more attention to what you guys are doing.
And if it benefits the citizens of this City to either have lower rates or find out about different types of policies that may lower their individual rates or creates an environment where maybe consumers have a better understanding of the fact that the neighbor down the street who has a case and is wearing a collar and is going through all the stuff that people go through often times which may or may not 178 04/22/03 - LAW & GOVERNMENT - BILL 030220 be the most legitimate case in the world, that when they get that big award, you the neighbor are helping to pay for that with higher insurance rates. And I don't necessarily know that people think about it in that context. So I'd like to change a little bit of the tone of the nature of the relationship between the industry and the City and see if we can, not only make the Advocate work for all of us, but also delve into areas that are better left to people that have a certain level of expertise, and insurance is certainly one of them. What I'd like to ask you about is a couple ideas and issues that have been floated in the past, have you explained them to us and what you think the end result would be. " What are those?
The primary one -- and I made reference to it two weeks ago as well. The 179 04/22/03 - LAW & GOVERNMENT - BILL 030220 Insurance Department requires that insurers have mandatory binding arbitration of uninsured and underinsured motorist claims. That arbitration system -- and I testified at reasonable length two weeks ago, but the arbitration system is significantly more expensive than the regular judicial system. Every other claim you have goes through the judicial system.
It was not created by the General Assembly. It was created by the Insurance Department, and it probably goes back 20-some years.
All right. But that's that issue. And then on you talk about rates here in Philadelphia have been flat or down over the past eight years for most insurers and insurance us far more available. Have you provided to this Committee the data and information to support that statement?
Yes, sir. We provided it on numerous occasions to the auto task force, you know, surveying companies from 1995 to 2002. And 180 04/22/03 - LAW & GOVERNMENT - BILL 030220 I'll get both of you that information. We did it for eight companies, a rate comparison, taking a couple in their mid-30s and a single person aged 23.
Licensed in the state of all shapes and sizes, I suspect you always hear people say thousands. Probably actively writing insurance in Philadelphia, you may -- some of them life companies, some are health companies. I think actively writing insurance in Philadelphia it's going to be in the hundreds. Major writers in Philadelphia --
Could you give us an analysis by company of whatever the information you have to show market share in Philadelphia? 181 04/22/03 - LAW & GOVERNMENT - BILL 030220
Let's go back to the last page of your testimony and then I have a couple other items. You talk about, first, get involved in state matters, not just in examining rate filings which you're already doing, but examining what the State is or could be doing about reducing the cost that drive rates. What are those?
I'll give you a couple of examples. I think Councilman DiCicco or I think you mentioned it when you talked about a person with a collar and you mentioned it when you get tapped in the bumper and you say, "Here, I'm going to hit the Lotto." There are from time to time state laws that come up that deal with chiropractors and that deal with what unlicensed assistants to chiropractors can do. What we find, as insurers, is that what we end up paying for are chiropractic bills where they have just a number of unlicensed assistants and people come in and you get the heat treatment and it's --
A number of what? Unlicensed what? 182 04/22/03 - LAW & GOVERNMENT - BILL 030220
Unlicensed assistants. And they run what we would call in our business chiropractic bills where they can go out and they can do all of this stuff. And what it leads to is high claims because not only does the person going for treatment, but the person is missing work; and the longer the person's missing work, the higher the economic damage is and non-economic damages end up being factor in that.
And this information has all been laid out? Have you written that somewhere? Is there a document that is, I guess, the industry premiere on what it would take to lower costs in Philadelphia?
We're talking two different things here. There are bills that are in play up in Harrisburg that get moved around from time to time. Sometimes they get enacted, sometimes they don't that effect insurance rates. For instance, the Minority Whip Mike Veon has a bill out there to increase the mandated coverage that people have to buy. You increase what people are going to have to buy, that's going to increase the cost of insurance. 183 04/22/03 - LAW & GOVERNMENT - BILL 030220 There are bills that autobody shops have that are going to increase the cost of insurance. Whatever the merits are for autobody shops. In terms of a primer on how to reduce rates, I think Herb Denenberg's no tort option --
I want to talk about a couple of those items. Talk to me about the limited tort differential. Can I just ask -- I know everyone's trying to come into the 5 o'clock hearing. We're still in a 1 o'clock hearing on a totally different subject. I just need to be exchange with this particular witness and I want to be able to hear. Thank you.
The limited tort differential was something that came about in Act 6 of 1990. What it does is it provides that -- the limited tort differential provides that the person who elects it foregoes his right to non-economic damages, pain and suffering, if it's not a serious injury. If it's a serious injury, it gets the whole enchilada, but if it's not a serious injury --
Who determines whether it's a serious injury? Is that a medical 184 04/22/03 - LAW & GOVERNMENT - BILL 030220 determination?
Who determines whether it's a serious injury? Is that a medical determination?
It's a medical determination that's sort of been judicially crafted. It tends to be a permanent and/or debilitating injury of a sustained nature.
Ladies and gentlemen, do me one favor. I'm in the middle of questioning a witness in a totally different matter. Please come in, get your seat. Our 5 o'clock hearing is going to be starting shortly. But we're still in a 1 o'clock hearing. And I'm just trying to extract some information from this witness about an issue that you may also actually be very interested in, which is auto insurance. Please proceed.
The limited tort differential came about, and at the time it was enacted, the insurers were required to give a 12 percent rate differential, rate discount, because of that. Since that time, the State has required that 185 04/22/03 - LAW & GOVERNMENT - BILL 030220 insurers give at least a percent differential. Some companies give a greater differential. Councilman DiCicco's good hands company, for instance, gives a percent differential for that. 6 It has been -- and it's through the 7 Insurance Department. That differential has been 8 the same in all territories of the Commonwealth. 9 And this will go to Councilman Cohen's concern about 10 geographic rating. We have been talking about it 11 with the second version of the Auto Task Force, 12 talking about it with the Administration. It may be 13 that that differential should be greater in 14 Philadelphia than in other territories. 15
That would be because -- and it's a theory. The Insurance Department is researching it. But the theory is that it changes behavior more in terms of bodily injury claims in Philadelphia than it does in other territories because there is a greater problem to begin with in Philadelphia than in other territories.
Because when you elect an 186 04/22/03 - LAW & GOVERNMENT - BILL 030220 limited tort option, you lose an economic incentive to have the collar, as we talked about, to have the soft tissue injury that just adds on and on. Because you no longer get that pain and suffering kicker, you lose that economic incentive.
Well, I would only suggest to you -- I mean, I have personally limited tort, but I guess there are a couple things that may work against people picking that option up. One, I think -- I don't know how it works in terms of your insurance provider and I don't know whether they get additional compensation based on how much insurance you pick up. I don't know that side of the business. Again, an Insurance Advocate could help explain that. Limited tort is often discouraged. It's certainly discouraged by any of my friends in the legal community. You know, I'm only interested in getting what I think I'm due. I want my car fixed if I get in an accident. And if somehow some way my insurance didn't cover some cost that I had from a medical standpoint or an injury, I want it covered. I'm not interested in having a long, drawn-out case. I'm not interested in being court. I'm not interested in going to a whole lot of stuff 187 04/22/03 - LAW & GOVERNMENT - BILL 030220 that I don't want to be involved in. And I do know, I at least figured out, that it would give me a lower rate while still providing all the coverages. When you listen to the term, it sounds like you are giving something or getting something less than what everyone else is getting. And many consumers may not necessarily be interested in pursuing all this activity and the collar and the doctor and the whole rigmarole that goes with it. But if it's not properly explained, if you can't figure out that not having uninsured or underinsured coverage -- I mean, I don't quite honestly know what I'm getting if I had uninsured motorist coverage, because if I had it and the person is uninsured, it's not like they're going to pay anything. And I'm not sure what extra I'm getting. So I think I don't have those either. So there is fair amount of education that needs to be conducted amongst consumers. And we're about to go into another hearing on a very important issue, but I think it would be helpful to have from you a more detailed explanation of all of these issues and also take some, you know, without names and addresses, but take not just hypotheticals, but take some real live people. I mean, I'll give you myself 188 04/22/03 - LAW & GOVERNMENT - BILL 030220 and my information, and show us on paper what the different coverages would provide, what the different coverages would do to someone's actual insurance bill, and then lay out what is it that they may be, quote/unquote, giving up by having limited or no tort. You know, are you getting your full coverage for your vehicle? I'm sure the answer is yes. Are you getting full coverage for any out-of-pocket expenses that are legitimate? The answer is probably yes. And then there's a whole bunch of frill stuff that goes with it that you may not necessarily need, but you're fearful that if you don't take all this stuff, which only jacks up your bill, that somehow you're going to be in a lesser position. So I don't want to continue this because we're a couple minutes after 5:00, but I would like to explore these issues in more detail and I'd like to continue a dialog going back and forth, and I'd like to ask if you would seriously think about how we can make the Insurance Advocate work for the City and its citizens and for the industry as a communications device and an information sharing device back and forth, because as long we're putting 189 04/22/03 - LAW & GOVERNMENT - BILL 030220 out the truth and as long as we're educating people, I think all of us are going to e beneficiaries in this particular process.
Councilman, I appreciate that. That actually is our goal. I'd actually refine that a bit. Yeah, I'm an advocate for the insurance companies, but what I advocate is creating a better insurance marketplace. If you have a decent insurance marketplace, it benefits companies, it benefits consumers. I'm happy to work with you on it. I think the consumer outreach programs, consumer education programs are important. I would urge that City Council goes forward with this, I would urge that you talk with the Governor's office, you talk with the Insurance Commissioner so that you can learn in way where I'm not going to be the best teacher so that you can learn about state regulation of insurance. I've learned a lot about what City Council has to do. Because you don't want Philadelphia to be worse market than elsewhere, you want it to be better market.
I understand that. And maybe our Insurance Advocate will help us with that. So let's think about how we can work together 190 04/22/03 - LAW & GOVERNMENT - BILL 030220 and better educate each other. But I would only caution you that when the industry takes an almost immediate negative reaction to an action by us borne out of frustration or whatever it's borne out of, you allow yourselves to fall into an instantaneous knee-jerk reaction and a perspective that says, "Well, of course. What else would they say?" And that further creates suspicion and animosity between the parties. And if we're trying to lower the rhetoric and get to what the real deal is, you know, sometimes you may just have to accept, "Well, we're not thrilled about that but that's their right to do that and if that's how the City wants to conduct itself, okay. How can we now turn this around to a positive?"
As I've said at the outset of my testimony, I realize that opposing it is the best argument for it. I'll hand deliver this week the stuff that we've sent before. You'll see we've been trying to work with the City on this. We want Philadelphia to be a good marketplace for us, obviously, but also for our policyholders.
Thank you. Thank you, Mr. Chairman. 191 04/22/03 - LAW & GOVERNMENT - BILL 030220
We can recess hearing next week some day because I think this is important.
I'll accede to the Chair's wishes. I am prepared to actively and aggressively get into this particular issue I think as long as the insurance industry is willing to keep their hand out, with their palms up, and in some kind of spirit of cooperation. I won't go as far as to say partnership at the moment, but I think the expression here this afternoon has been a good one. And if it helps to keep attention on the issue, and the gentleman I know is sincere about getting us information, then certainly we can follow-up hearing just to keep this issue moving.
Councilman, as I said, I'm here at your beck and call, and more important, our industry is. I'm happy for hearing. I'm also happy for round-table discussions which sometimes can produce greater understanding.
Well, we'd like to settle the question auto insurance at some point in 192 04/22/03 - LAW & GOVERNMENT - BILL 030220 a way that makes the Philadelphia resident feel he's not been treated really unfairly, as most people in Philadelphia feel.
Mr. Chairman, why don't we set it to a date and time certain. If we are ready to go with that particular date at that moment, we'll take it. If not, we can recess to another time. But we'll have a continuing -- we'll maintain our continuing quorum and the flexibility of the committee to conduct its business. Why don't we just recess it a week to a date and week.
Why don't we recess it until May the 1st at 4: 30 p.m. That will allow some time for discussion. We can change the time at that point if it seems advisable. Would that be agreeable? It's a Thursday, May 1st at 4: 30 p.m.
The Law and 193 04/22/03 - LAW & GOVERNMENT - BILL 030220 Government Committee on the matters of car insurance before it will recess its hearing today until May 1st, at 4: 30 p.m. Thanks, those that are here on the auto insurance. We're now going to have a short five-minute recess because the