Page 7


Tie-in Insurance Rates Regulated \(Continued from Page amount of required health and accident credit insurance can be 300 percent of the note on loans of $50 or less payable in three months and 175 percent on larger loans. Not all credit insurance is connected with the small loan trade. Banks and other financial institutions write it for various debts, and this aspect of its application is not the subject of this study of its widespread use as an added charge on small loans. The ,commission is required to set the premium rates, but it has not held a rate hearing since 1952. Connor explains that other things have been put ahead on the agenda, and that in ratemaking, five years’ company experience is necessary. A former commission chairman, George Butler, now deceased, stated on Feb. 12, 1952, in response to complaints then that the rates were too high, that they had been in effect only two years and that three years is considered the minimum experience period \(Dallas News, Feb. Complaints about the rates have been filed with the Insurance Commission and the Attorney General’s office some of them literally tomes of charges. There has been no state action as a result. Connor told the Observer : “I don’t believe I could truthfully say arty business has been _put out of business for its credit insurance business.” He has received “very few complaints,” he says. The board has refused to regulate the lenders’ commissions which make up about 85 percent of the “insurance” coston the” theory that the law does not give the board this authority. Presumably it could set the rates low enough to force an indirect reduction of commissions, but it has not done so. Loan companies’ agents now turn .over their commissions to the company. An article in the Texas Insurance Code prohibits insurance agents from assigning commissions to a corporation. Connor and the board have maintained that the subsequent adoption of the credit insurance statute, in which a “lender P”” -nt” is defined to -include companie ti a subsequent reference to lender agents receiving commissions, is an exception to the prohibition. By these various rules and interpretations the Insurance Commission has in effect upheld the high-coMmissiOn, low-claims policy of the credit insurance industry of Texas. The Plan Put another way, here is how Texas credit insurance works. You need $50 quick. You go to the High-Card-Wins Finance Company on the “Little ‘Wall Street” in your to us, is the evidence that members of the commission were told of conditions in the US T&G affairs that should have put them on their guard months before action was taken. If the commission had moved swiftly when they first suspected everything was not as it should be, many investors would have been saved many hundreds of thousands of dollars. It seems to us that the least Governor Shivers can do is to call for the resignation of these two men and replace them by as able Texans as can be found. LEGISLATURE IS EVEN WORSE But even worse than the situation on the Insurance Commission is the situation in the Texas Legislature. The man who pays the fiddler generally calls the tune and some way is going to have to be found to keep legislators from accepting legal fees or any other payment from those who have business with the Legislature. My space is growing short and I must hasten to outline at least three things I think are necessary if Texas affairs are to regain the integrity they must have if we move forward as a great state. town. The man says, sure, the interest and fees on that for three months will be about $1.50. Naturally, he tells you, you’ll want to buy some credit insurance._ \(If you don’t you don’t get the premium, $ 2, disability premium $12.27, hospital premium $2.03, total, $16.30; total charges for the threemonth loan, $17.80, and the man hands you a policy you sign and a note you sign for $67.80, repayable in three monthly installments of $22.60. The moneylender takes your premiums of $16.30. He pockets about $14 as his “commission” on the insurance; the credit insurance company he has contracted with gets the rest. On the average, it keeps about $1.30 for expenses and its own profit, and with the remaining $1 it pays off claims from the borrowers who, like you, bought the insurance because they needed cash fast. This is the result of the 1949 credit Cain called one of the most commendable pieces of legislation ever passed in the United States, and which the Texas Secretary of State calls the enactment by the Texas Legislature of a usurious subterfuge. \(The charges in the illustration are taken from a price list shown the Observer by a terrified loan company manager in San Antonio who begged his name not be , used for fear he would be fired: A spot-check with other companies in the city indicated the total. charges are about standard, but that the total insurance premium Some Firms State law requilIs insurance coinpanics to file annual statements with the Board of Insurance Commissioners. From these the Observer has learned that the most recently reported practice in the Texas credit insurance industry appears to be to pay out roughly 85 percent of all premium income to the moneylenders. Between five and ten percent is paid out for claims by the borrowers, and the balance is kept for the companies’. expenses and profit. Roy Cummins, vice-president of the Texas Association of Small Loan Companies for three years, told the Observer in San Antonio that the four principal Texas credit insurance companies are Bankers Health and Accident. of Dallas, Home Life and Accident of Dallas, American Guaranty Health, Life, and Accident of Austin, and Continental American of Houston. The Board of Insurance Commissioners has listed 72 Texas insurance companies which have paid the necessary fee to qualify to do the business, but a staff official states that very few of these have credit insurance as their principal line. The two Dallas companies are un 1.Some effective way must be devised to make public EVERY campaign contributiondirect or indirectmade to any candidate. It must be a criminal offense to hide any contribution or to disguise its true source. There must be stiff criminal penalties for any violation. 2.There must be a registration law for all lobbyists in Austin. This law must provide for a detailed listing of all expenditures including the name of every person who received any favor however small. It too must have stiff criminal penalties. 3.Every member of the legislature must disclose the names of all his clients who directly or indirectly could have any interest in legislation. The amount of fees should cover a period of time preceding the Legislature as well as the period during the Legislature itself. And we are not only talking about lawyers and legal feeswe’re talking about public relations men, lobbyists, real. estate agents, insurance agents, salesmen or whatever the profession of the legislator might be. Any financial obligation that could have any bearing on a legislator’s actions should be matter of public record. And again there should be stiff criminal penalties for violators. GEORGE CARMACK pp ‘4 derstood to be the biggest ones in Texas, so the Observer checked their annual reports for the last four years available-1951 through 1954. During these years, Home Life and Accident took in $10,859,389 in premiums, paid claims of $571,772, and paid commissions to agents \(usually other words, during these font years, Home Life took the $11 million paid in for “credit insurance” by borrowers as a condition of getting small loans and gave 89 percent of it to the moneylenders for “commissions” and 5 percent to the borrowers for “claims.” Bankers Health and Accident records for 1951-’54 show a total premium income of $10,254,974, of which $764,699, or 7.4 percent, was paid to the borrowers for claims, and $9,080,262, or 88.5 percent, was paid to the agentsthat is, the loan companies as “commissions.” \(Detailed figures on these two com Frank Cain and his law part ner, Representative Doug Bergman of Dallas, have represented Home Life at hearings on credit insurance before the Board of Insurance ‘Commission Insurance Scandals To the Editor: Enclosed to cover a year’s sub scription for your magnificent newspaper. Both my partner and I have been reading The Texas Observer for quite a while, but we believe that we could tine a good newspaper in our office for the clients to read. We want to congratulate you, especially on your recent issues wherein the Insurance Commission’s scandal is very frankly and fearlessly presented V.G. ROEL Roel & Sanchez, Mk] . Bldg., McAllen Every Family To the Editor : It looks like at long last, due to your efforts, the big daily papers are being forced to give the public the facts. I only wish there was some way to put your paper in the hands of every family in Texas. W.J.B. GOULDY 1301 West 7th St., Plainview Back to Mexico To the Editor : During the “Louisiana Scandals” back in the 1930’s, some bright Texan. suggested the United States sell Louisiana back to France. In view of the recent and current “Texas Scandals,” let’s hope no Pelican Stater mentions a deal to return Texas to Mexico …. R. Q. SPINEY Winnsboro The Daily Press To the Editor ; Congratulations … for coming out with information that we do not get from the daily press … W.A. KLECKA Temple Skullduggery To the Editor : Bravo ! You are doing a good job of telling the people of Texas of the skullduggery going on in Austin, which should have been exposed by the timid dailies long before your or ganization. GARLAND F. SMITH Box 186, Weslaco \(Not to be confused, I ers. Bergman told the Observer in Dallas he “handled” the 1949 bill that legalized credit insurance before the House Insurance Committee, of which he . was a member. Bergman and Cain have also been active in connection with other legislation affecting loan companies and credit insurance since 1949. The firm of Irion, Cain, Bergman, and Cocke has many powerful out-of-state finance company clients in addition to its interest in the of fairs of Home Life and Accident. Home Life and Accident writes credit insurance for between 500 and 700 lender agents, Cain has stated. Originally incorporated a s “Cain Life,” in 1951 it bought out the credit insurance and name of another company, which then became Insurance Company of Texas. Among the loan companies in this reinsurance agreement were Grand Loan, San Antonio; Goodwill Finance and Liberal Finance of Dallas ; Family Finance offices in Houston, Dallas, San Antonio, Corpus, Fort Worth, and El Paso ; and American Finance, Greenville. Many of the names of policyholders in San Antonio and Corpus are Latin-Ameri ca-1 W’ When the Insurance Commission sponsored an industry-wide Texas reform committee in 19$4, Frank Cain High Time To the Editor: I certainly agree with Mr. Ralph Yarborough that the three commissioners should resign for the good of Texas and the insurance industry. I think it is high time to put a stop to swindling the people out of their money …. RAYMOND CROUCH Center An Investment To the Editor : My sister is weary of remailing her copies of the Observer to us, and my husband says, “If liberalism in Texas isn’t worth four dollars a year, what is ?” … Enclosed … VIRGINIA McMILLION 1124 So. 30th, Waco Graft & Corruption To the Editor : Democrats should be everlastingly grateful to you for your forceful and revealing articles of the insurance, land, and all sorts of graft and cor ruption in the Shivers Administration …. Your paper … and that -stalwart, outstanding Democrat and Christian gentleman and crusader for the right, Ralph Yarborough, are responsible for our present hopeful situation . . . . ‘RS. J. M. JONES 705 N. Main, Temple Program Complete To the Editor : How well I remember how Allan Shivers pleaded to the voters of Texas to elect him to ‘a third term so he could carry out his program … Well, with most of all the appointees in the land deal and the insurance deal The next dav,.after the court’s decision on segregation Shivers said Texas will go along with the decision. Most Texans had rather have their states’ rights than the tidelands. As I see it he has just about finished his program he had planned. W. H. WARREN Farmersville The Texas Observer Page 3 Jan. 25, 1956 We% Press Lashes at Shivers Y.