And we don't know what the end result of that would be. Litigation, we can win it; we can lose it. But in the meantime, rates are still where they are and some cases -- I know in my case, they've actually gone up, with no 9 claim, no claim.
And I'll tell you, I've never seen, frankly -- and I'm a lawyer and thrive on litigation myself. I can't really say I've ever seen litigation produce a better market. Do I favor a State consumer advocate? No. I think, frankly, the role of consumer advocate is largely played by elected officials. All of you run for office to represent the consumers --
Listen, I don't even have an opponent right now, so it's not that I'm doing this for political reasons, to be honest with you. I have an opponent in November, I should say, but not in the primary. The point I'm making is that I don't have the expertise. I don't have the knowledge. I'm relying on people. Ms. Schulman was hired by the Rendell Administration to look at 98 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 the issue. She put a very thorough informative report out. This Administration decided that they no longer needed her. I don't know the reason for that and I'm not going to get into that. But had it not been for this information, most of the questions I have today, I would not have been able to ask you. That's not what I do.
I think the City is suing. If I honestly thought, gee whiz, lawsuits are going to bring insurers in and have insurance say, "Man, that's exactly where I want to do business," God bless. It's not a business reality.
That's why an advocate, I think, would be helpful. We may not have to go down that litigation road. We can talk about these things and work them out.
The experience of consumer advocates would go the other way, but that's a topic for another hearing. Again, we hope the chance -- whether you have an advocate or anything, we'd like to work with you.
Mr. Marshall, 99 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 one question. It's bothering me for sometime. Say my car gets hit in a parking lot, wherever it may be, and no one stopped to report it. Now, I report it to my insurance company. I've been told that your rates will go up. Is that true?
That's something I could never understand. It was not fault -- not that it happened to me. I'm just giving you an example. If my car got hit and may be it's 800, $1,000, whatever it may be and I report it to my insurance company, then I'm told that the rates are going up because I had reported that. Is that true?
Eight or a thousand dollars, she said; $800 or $1,000.
I'm paying 100 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 insurance. He hits me.
No, you didn't stop. You didn't stop. I got hit in the parking lot or while I was waiting or whatever. Whatever the reasons are. Now, I report that. I get it fixed and I'm paying like 12, $1500 to get it repaired. I report it to my insurance company.
I have been told from several people that their rates go up.
I think what the Councilwoman is saying is anytime you file a claim in excess of whatever your deductible is, the likelihood is that you're going see an increase in your premiums. That's what normally happens.
Certainly, companies have surcharge programs. And, frankly, it isn't to get the money back because it doesn't.
Why am I paying insurance? 101 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525
It just doesn't make sense. I'm paying insurance, $3,000 a year, whatever it may be. And yet car B, whoever that person was, hit me and I have to report it to my insurance company, $1,500 or whatever, why should I have to have my rates go up?
I want to check because, you know the parked car, stolen car thing, I'm not sure --
I must be missing something. Am I clear here or what?
When someone files a claim for whether their car was struck by another vehicle, whether that person stopped to give information or not, whether your car was broken into and there was theft from auto, once you file that 102 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 claim, the likelihood is you're going to get an increase in your premiums the following year.
It's not impossible that it will happen. But I don't think most companies for one incident or an incident of a certain level automatically -- they have surcharge programs. I will admit that. But I don't think -- you're making it sound as if that happens every time. I don't believe that's the case. But we will check; that's all we can do.
I wish you would because I have been told by several people that that has happened.
I didn't say it was impossible. I don't say it hasn't happened. You're 103 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 asking me if that's the rule and that that's how the system works. My impression is that it is not, but I may be wrong. But we will check for you.
What we want to figure out on that, Councilwoman, what I usually find is somebody starts with your hypothetical, "Hey, I was parked" or vandalism or something like that, and what it always ends up with is, "Well, actually, I was driving along and another guy hit me and it was more his fault than mine. He was really at fault," or something like that. So we'll get you information on both scenarios.
You will find her story is absolutely correct. It's well known by everybody that that's exactly what happens. Every insurance company follows that policy. Either they're not telling you as their lawyers, but the story is -- how soon can you check with them?
Because insurance companies are open and frank on that. They say, "Yes, your rates will probably go up."
I'm not talking 104 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 about what you had just said, about someone that would hit you and you say, "Oh, it was someone else." I'm not talking about that. I am talking about when there's a police report. There's a police report that someone hit my car.
Just to follow up on that, one of the things that happens in many cases is that people who have a vehicle that was damaged, when they go to a body shop and they get an estimate, they look at what the estimate is and compare it to what the deductible is, and they say, "You know what, my deductible is 500. The damages 800. For the $300, it just doesn't make sense for me to put the claim in because I'm going to get an increase in my premiums." So a lot of people opt out of even putting a claim in. There are thousands and thousands of people who don't even file a claim because they figure it's not worth it for them to file the claim. So they're forced not to even exercise their right under the policy to recover some of the cost of the damages.
And a deductible is a 105 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 per accident deductible. It's not covered for the year, like most other deductibles apply. Let me ask one question. Does the name John Guinther mean anything to either of you?
John Guinther, G-U-I-N-T-H-E-R. He's one of my favorite government gurus who studies government and government policies and is highly critical of them. One would expect, in view of the stories the insurance companies always tell, that he would be on the side of the insurance companies. But instead, I find in his writings he continually speaks of the fact that insurance companies don't tell the full truth and have policies that are harmful rather than beneficial to drivers and that's why I ask, do you know that name at all? He's a Philadelphian. I suggest he seems to be as fair-minded as I've known anybody ever to be in these situations. But he is convinced that the insurance companies use all kinds of techniques, they hide their income from investments. Many of them have long-standing investments, but they never 106 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 include investment income in filing reports with states, you know, when they are asking for rate increases. They just want to use their accident business, for example, and try to prove that portion of their business shows that they're operating under difficult financial circumstances instead of considering all of their sources of income.
Don't know the name. Happy to talk with him. Of course, I'd note that probably right now nobody has investment income, so I'm not sure what there would be to hide.
All right. Because I think we're going to have to put the full flood lights on all of the facts to get to fairness. One other specific question. On arbitrations, I frequently serve -- that means once or twice a year -- on these arbitration boards of the Bar Association. I assume they're the arbitration boards you talk about as saying that they're part of the problem?
The Uninsured Motorist 107 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 Arbitration Panels are distinct from what you're talking about.
Well, we never know whether there's insurance or not. When we hear an arbitration case, we're not permitted to --
Then if you don't know that, then you're definitely talking about a different arbitration board.
You're talking about the Common Pleas random assignment system we did when we were lawyers.
Because the Common Pleas system always ensures there will be at least one person that's friendly -- that is sort of a defense lawyer, one that may be a plaintiff's lawyer and then a third one that's an impartial that may serve both sorts of clients.
No, they're arbitration boards, they're all for UM cases, uninsured and under-insured motorist cases.
Thank you very much. I understand there are two witnesses at least today, maybe more. We'd like to move ahead. Thank you, Mr. Chairman.
Thank you very much. If there are no further questions for these witnesses, we'd ask them to be excused. I'd like to apologize for my tardiness this morning. I had a funeral to attend this morning and thank Councilwoman Krajewski for chairing the hearing. At this time we'd like to ask Susan Schulman to come back to rebut some of the issues that were discussed.
Thank you, Councilman. Thanks for indulging me. I do have to run out for another appointment. There were a number of points I did want to respond to. First of all, I think that Councilman 109 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 DiCicco voiced a frustration that the Task Force worked with over at least the two years that I was involved with it. It seems like that according to the insurance industry, a decrease in the number of cars that are stolen, a significant decrease in auto theft does not correspond to a decrease in your premiums. That was very clearly illustrated in New York and also is illustrated in Philadelphia. A decrease in the number of uninsured cars doesn't correspond to lowering premiums. A decrease in the number of personal injury suits, which the insurance industry claims to be the No. 1 problem, we've seen a very significant decrease in incurred losses in Philadelphia pointed out in Exhibit C-1 of our report, a decrease by percent. That's a pretty 17 big chunk. And that's only from, I believe, the 18 three years that we were able to get data, 1994, '95 19 and '96. Decreased by 22 percent in Philadelphia or 20 more than 7 million in dollars that are paid out on 21 personal injury claims does not correspond to the 22 lowering of premiums. So the question has to be, what does? What works? And I think that if you were to study the insurance industry response for at least recent 110 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 modern history, there is nothing that works. I honestly would ask you again to take a look at the comparisons that we made in Exhibit C-1 and C-2 where we noted a number of very significant decreased in personal injury claims. Our Task Force was very cognizant of the fact that in Philadelphia personal claims are the No. 1 reason cited by the insurance industry for our premiums. So, of course, that's where we felt we should devote most of our time. However, despite the decrease by percent 12 in personal injury loss payments -- we grant you, 13 the number of claims is up, always has been. It 14 seems that Philadelphians will continue to make 15 claims even though they have limited tort policies. 16 The dollars paid out on those claims, we felt, was 17 the more important number and the more important 18 statistic. And I would point your attention to 19 those two charts. 20
Councilman DiCicco 21 had mentioned this to me as I came in, that the 22 industry indicates that there's a very small comparison to the number of uninsured motorists, the number of stolen cars as it reflects or relates to the rate that an individual would pay compared to 111 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 where they live. But on the flip side, I understand that the auto theft rate is up in the suburbs compared to Philadelphia. So wouldn't it seem that would translate into an increase in premiums in the suburbs? Seems like the things that don't help Philadelphia's insurance rates go down don't force the rates up in the suburbs either.
That's correct. And when you study insurance in general, there are complex answers to very easy questions. It's very difficult to get the answer to "Why don't premiums correspond to experience?" On the one hand the industry says, "Of course, they do. You only make premiums based upon past experience." However when your past experience improves such as it has in Philadelphia why haven't our premiums gone down.
And if things have gotten worse in the suburbs, how come their premiums are not going up?
I also did, while I was still in my position, a constant review of rate filings to see where we were. And the industry's claim that rates were flat in Philadelphia and that really auto insurance was not going up here, it was 112 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 not really of controversy here --
In your opinion, do you think that City ratepayers are subsidizing suburban ratepayers?
Not only suburban, but certainly statewide. And particularly when it comes to the full tort, limited tort discount, Councilman, that's where we in the end felt that immediate correction could be made if the insurance Commissioner took a closer look at that differential.
I missed the word when you said, not only suburban but...
Yes. Where we in Philadelphia have embraced that limited tort policy to the extent that we have, if we're paying too much for that coverage, we are certainly helping out our 113 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 neighbors substantially by us paying more, as I think what Mr. Birnbaum testified to. So, yes, I think that correction here may cause problems elsewhere.
The other thing I'm 7 wondering is a much more subjective subject, but I'm 8 wondering whether or not the lack of political clout 9 in Philadelphia from a majority standpoint in either 10 House over a long period of time has created a 11 stronger constituency for the insurance industry 12 with suburban legislators and rural legislators than 13 it does with city legislators? That's certainly 14 subjective and there's no way to prove it, but it 15 would seem to me that there's probably more fear of suburban Senators and House Members than there is Philadelphia Senators and House Members.
I think that you hit a point, but I also experienced in my job that suburbanites weren't happy with their rates either and neither were their legislative leaders. So although they may not have been as disgruntled as we are in Philadelphia, no one likes what they're paying.
The Councilman said 114 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 if you're stopped in Philadelphia without an insurance card but you have a license and registration your car can't be impounded. My understanding of why that happened was that the information necessary to access because of the delay sometimes -- okay.
Yes. And to comment just further on our rates, if you take a look at the Pennsylvania Bulletin from 2001 was when I stopped doing my analysis -- and I don't think rates have gone down any. We see increase after increase. There was a percent increase by Allstate, 11.2 14 percent increase, 4 percent increase. They keep 15 going and going. Insurance rates in Philadelphia 16 and in the rest of the state are not flat, certainly 17 since the year 2000. They've been escalating very 18 significantly and might have gone up also. 19
I apologize, this 20 may have been asked already. Why currently do you 21 not have the job? What happened? 22
Who made the decision? 115 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525
Who informed you of the fact that the contract wasn't being renewed?
And I did just finish up the Medical Malpractice Task Force for the Governor, so I have continued on the insurance end of things. I did want to touch a little bit on the mandatory arbitration issue for uninsured and under-insured motorist claims.
Not to beat -- because I asked the question earlier and Councilman Kenney just asked it. When your contract was not renewed, did they give you a reason why it was not renewed?
The comment that Mr. Marshall made about the problem with uninsured 116 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 motorist rates now seems to center on our mandatory arbitration system, which takes UM and UIM claims out of the court system. This was a vehicle, to my understanding, that the insurance industry was in favor of long ago. And they are in favor of it, by analogy, in the medical malpractice realm. There is a movement to make arbitration mandatory by contract between a patient and a doctor. And the insurance industry feels that apparently whenever you remove claims from the court system, from the jury system, the insurance company is going to benefit by that because you'll do away with these so-called run-away verdicts. Well, apparently now the reverse is being proposed, that mandatory UM and UIM arbitration be put back into the court system. It's just interesting to note. And I think the insurance industry -- somebody needs to be tracking kind of what the position is this year as opposed to what it might have been 10 years. It goes, certainly, back to creating an office where somebody does that kind of study.
What was your salary when your title was the Task Force whatever?
I had a contract for my 117 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 services, so --
It was a one-year and then it was renewed. Mayor Street did renew my contract for a second year. So my first contract was under Mayor Rendell.
Thank you very much. Jonathan and Lance, could you come together?
Good afternoon. Both you guys know the drill quite well.
Good afternoon. My name is Lance Haver. I'm currently the President of the 118 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 Board of CEPA, the Consumers Education and Protective Association, a 37-year-old grass root group founded by the late Max Weiner. I want to thank you very much for holding these hearings. Perhaps, as you'll hear from my testimony, car insurance is an exceedingly important issue. Since I began working with CEPA in 1978, car insurance has been one of the issues that I have focused on, and the reason is simple: The average Philadelphian pays more for car insurance than they do in wage taxes. And when you add the burden of homeowners insurance, often the difference between suburban rates and City rates are more than the wage tax burden all tolled. I will say that again. On average, a Philadelphia household pays more for car insurance than they do in wage tax. Here are the numbers: The average car insurance policy costs $3,000 a year. The median Philadelphia household, according to the Mayor's Five-Year Plan is $30,746 a year. 045385 is $1,395, less than 50 percent of what the average car insurance policy costs. Yes, I know that the average 119 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 Philadelphian may not buy the average car insurance policy and I know that averages don't always tell the full story. But you have to admit, the facts are staggering. The difference between what we pay for car and homeowners insurance and what suburbanites pay is more than what the average family pays in wage taxes. I do ask you to note that the spokespeople for the Insurance Federation never talked about the actual difference in the rates. They said there was a difference, but they didn't say exactly how much it was. And the reason for that is because of how high the numbers are. That brings us to the question of why; why do City residents pay so much more? Over the 17 years that I have been examining this question, I 18 have come to a simple answer: Because the insurance 19 industry gets away with it. Insurance companies and 20 their industry groups are the consummate shell game 21 artists. They keep telling us where it is, but when 22 we pick the shell, we find it, the reasons higher 23 rates have moved someplace else. Let's start with where they often end, lawsuits. The insurance companies tell us the 120 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 reason why our insurance costs so much is because of all the lawsuits and high jury and arbitration awards. This is an old song that they still can't keep in tune. You might remember during the Casey Administration the insurance industry was playing that song. The state legislator and the Governor liked how it sounded and enacted a limited tort option. Now, most sane people would think that if the reason why insurance rates were so high in Philadelphia was because so many lawsuits, then the discount for switching to a limited tort policy in the City would be greater than the discount in the rest of the state. It isn't. Why? Because no one forced the insurance companies to do so. Next, we are told that the insurance rates are so high in the City because so many City residents register their cars outside of the City. The insurance industry makes a donation to the District Attorney's office to get it to prosecute people who so. There's a big ad campaign. The DA office calls it a success, but rates don't come down. Well, that is except for mine, I registered my car outside of the City and challenged the DA to prosecute me because I knew there was nothing 121 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 illegal about registering a car outside of the City. My rates went down by 60 percent, but no one else's rates went down. Why? Because no one forced the insurance companies to lower their rates. We can go through example after example. And you've heard them all and I don't want to take up your time to read the testimony. I do want to point out that Mr.
Marshall continues to talk about the number of lawsuits as being a problem. So today we hear the song again, it's those bad consumers and lawyers who file all those lawsuits and bad jurors and arbitration panels that award all that money, that is why the rates are so high. All of a sudden, they forget about the zip code rating which serves as a modern day redline and purposely punishes people for living in the City. " And, of course, that makes absolutely no 22 sense whatsoever. Let me ask this hypothetical: If Mr. Marshall's neighbor committed tax fraud, would he be in favor of he and his other neighbor, the one living on the other side of the tax cheat, having to 122 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 pay higher taxes because the people who cheated lived between them? Would Mr. Marshall support punishing people because they live next to people who behaved inappropriately? I sincerely doubt it. Why then if I have been in accidents and never filed a lawsuit revolving around the accident should I pay higher rates because some people who live near me have filed lawsuits after similar accidents? Even if Mr. Marshall's story is true, and I don't believe it is, wouldn't it make more sense to surcharge people after they file a lawsuit than it would to punish the people who live next to them with higher rates? Wouldn't knowing a surcharge was coming act as a disincentive to filing a lawsuit, and isn't that what Mr. Marshall is saying he wants? It's time to hold the insurance companies accountable for their statements and promises. Philadelphians need a consumer advocate to represent their interests before the insurance commission. As it stands, there is nobody representing our interests, and we know from history that when we are represented by a public advocate, millions of dollars are saved. Just look at the work done by the public advocates representing 123 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 consumers before the Public Utility Commission. There's too much at stake, more than what we pay in wage taxes, to let things continue. Let's get the hammer we need and smash those shells. Thank you very much.
I'm Jonathan Stein. I'm General Counsel of Community Legal Services. I don't have written prepared remarks because I wanted to keep this very short and brief. I really appreciate this hearing because I think you're really on to an extraordinary important consumer issue that affects consumers across the board, including low-income consumers who can't afford insurance or are cut off or, in fact, when they pay insurance often pay more than others, including those in the suburbs. I think the Ordinance and Home Rule Charter amendment, Councilman DiCicco, you drafted is excellent. I think it really would move things ahead in the City to have an advocate for insurance. And although we've talked solely about auto insurance here, the other forms of insurance are 124 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 equally important. 2 million people in Pennsylvania who don't have health insurance. We're talking about homeowners' insurance, credit life insurance, medical malpractice. These are vital elements of living and working in the City, and they really demand having an advocate to look at these issues on behalf of consumers. I would also like to kind of pick up on a couple of points that Herb Denenberg made earlier, which is, who in Harrisburg is looking after our interests? We've had an Insurance Commissioner for a hundred years with the exception of Herb Denenberg, who has come out of the industry and then goes back into the industry and is very indebted to the industry for his or her life and work. And what's quite disturbing is that the holdover Insurance Commissioner from the past years is still that holdover Commissioner. This is a woman who our Governor has supposedly held over for 60 days. Sixty days is now going beyond that. And she's the person who has denied Ms. Schulman the information 125 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 on auto insurance information that she requested. This is a Commissioner who denied Birny Birnbaum when he testified before City Council, he was inhibited by the fact that the State agency refused to provide him with auto insurance to determine whether the limited tort reform was producing enough savings for people in Philadelphia. And he told me after I spoke to him months later that he found Pennsylvania to be the worst Insurance Department in the country in releasing information. Yet, the same woman who has contributed to those problems is still our Insurance Commissioner. And I think we have to ask why is she remaining the Insurance Commissioner today. And I'd like to suggest in addition to the wonderful ordinance that has been put together in a Home Rule Charter amendment that the Council consider a resolution directed to the Governor, directed to the leadership in both Houses, urging the immediate appointment of an Insurance Commissioner who doesn't come out of the industry who will represent the public interests and will take office immediately. Obviously, you can't dictate who is the 126 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 Insurance Commissioner, whether there is a State public advocate, but I think City Council should lend its voice to people in Harrisburg to signal this as a crucial appointment and express concern that someone who has been a cause of problems in the past is still the Insurance Commissioner. This same Insurance Commissioner belatedly held a hearing on the Blue Crosses. The papers had reported and other people revealed that they're sitting on billions of dollars of excess reserves while there are over a million people uninsured who can't afford health insurance in Pennsylvania. And she held belatedly a hearing last September, and no one has ever heard a peep afterwards. So issue after issue after issue we find an insurance department that's not only in bed with the industry, but is not doing anything to lift a finger to protect consumers.
And so I would urge your consideration of a resolution that would seek the appointment of a fair, objective, and public interest oriented Insurance Commissioner, as well as a State insurance public advocate to complement a local City advocate. So that's essentially my 127 04/09/03 - LEGISLATIVE OVERSIGHT - RES. 020525 testimony this morning.
Thank you very much for your patience and for your testimony. Are there any questions?
I'd just like to take this opportunity to thank both you gentlemen for being here today and for your input. David Fitz, my legislative assistant, told me how invaluable that was and for recommending Schulman and Herb Denenberg for being here today.
Thank you very much. That will conclude the business of the Legislative Oversight Committee. Thank you for your attendance. (Council adjourned at 1:05 p.m.) - - - 128 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of April 9, 2003, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE ON LEGISLATIVE OVERSIGHT ___________________________ Lisa C. Bradley, RPR and Notary Public