The Texas Observer Dec. 30, 1966 A Journal of Free Voices A Window to The South 25c Auto Insurance’s Complexities Challenge the Legislature Austin One of Texas’ more intriguing mysteries seems certain to be pondered by the next legislature. The occult lore that governs the state’s automobile insurance rates has tantalized the minds of at least five of the lawmakers who’ll be here in January. State Sen.-elect Oscar Mauzy of Dallas made auto insurance rates a key issue during his campaigning this year. Rep. Will Smith of Beaumont has long been a fascinated follower of the evanescent fiscal phantoms attending the rates. Other legislative head scratchers have included Worth, Sen.-elect Chet Brooks of Pasadena, and Sen. A. R. Schwartz of Galveston. Many individual drivers have been complaining about the situation, particularly since the State Board of Insurance authorized an increase in rates for the second straight year. On the surface, it seems that the auto insurance rate increases do make sense as the Insurance Board and its numerous supporters among the state’s metropolitan press maintain. Carnage on the highways, plus rising costs of hospitalization and of auto repairs, probably mean that insurance companies must pay out more money than they have in the past. Even when the sharply accelerating number of miles that Texas motorists drive each year is taken into consideration, highway travel statistics, beginning in 1963, each year have reflected a rising rate of accidents and economic loss that is unparalleled in the state. The death rate is also rising \( though it is still below what it was in the decade after World War II and is less than half the rate in, for example, 1937. But of the loss on Texas roads and highways, how much is insured? The insurance companies point to dire statistics on traffic loss, but offer little to indicate what all this really means to them in claims paid out. Sorting out the dazzling array of factors that affect, or seem to affect, the situation is not an easy matter. Sen.-elect Mauzy says that he’s spent many hours with State Board of Insurance officials this year studying the facts. The rate-mak ing process, among other things, should be studied by the legislature, Mauzy believes. “I still don’t understand it and I don’t think that I’m that stupid.” A staff member of the State AFL-CIO has remarked, concerning the S.B.I., “We’re playing their game, in their ballpark, with the sun in our eyes.” DOES THE PRESENT auto insurance set-up unduly favor the companies? The suspicion persists in some quarters that this is the case. There is, for one thing, the palpable desire of insurancemen that no changes be made in Texas’ method of setting rates. Year after year at the annual rate hearing, insurance industry spokesmen and the S.B.I. commissioners seem in chummy accord about this, at time ganging up on representatives believing the hearing is a congenial occasion for public participation, testify. Often insurancemen have been outspoken in their praises of Texas’ rate-making procedures and have urged in public statements that there be no change in the present arrangement. At least two insurance agents Marion Sanford of Lubbock and W. M. Vittrup of Conroe sent out identical letters supporting Democrat Waggoner Carr for the U.S. Senate, citing as their reason the 1966 state Republicans’ platform plank that urges investigation by the legislature of the rate-making process and a consideration of competition in rates by the companies. A central point of dispute, which as a matter of fact has been debated nationally for more than forty years by those knowledgeable about insurance, is whether insurance companies’ investment income should be considered as a relevant factor in setting rates that are paid by policyholders. The companies contend that all income which they receive from investments should be withheld from such consideration. A motorist, it is argued, buys protection for a specified period and under- stands that he does not purchase an interest in the insurance company. If investment income is to be considered in setting rates, the insurancemen continue, then when there are losses on investments as when the stock market is down, wouldn’t drivers logically have to pay higher rates to compensate for this? Countering these arguments are several individuals, including Charles K. Leslie, a Houston insurance consultant; Robert E. Keeton of Harvard University, an insurance law specialist; and officials of Best’s, which is roughly the Dun & Bradstreet of the insurance industry. Leslie maintains that the Texas State Board of Insurance does not, as the legislature requires, consider all relevant factors in setting auto coverage rates. A former official* with the S.B.I. who was involved for several years in rate-making, Leslie, in an Observer interview in Houston, said that the state agency represents the interests of the insurance companies more than those of the public. “The fox is guarding the chickenhouse,” he says, in that the S.B.I. has transferred its duty “to serve as a third party to the insurance contract to one of the other partiesnamely, the Insurance companies.” This is a situation that is not unique to Texas, Leslie says. He was a key participant in 1965 when the State AFL-CIO went to court to protest the auto insurance rate increase of that year. IT IS LESLIE’S view \( a view shared by some others who are knowlkinds of investment income which should be considered in ratemaking for auto insurance. These are the proceeds from the companies’ investment of the premiums that have been paid to them in ad Leslie became a state employee in 1941 after 25 years in which he served, at different times, as the dean of a college of commerce, accounting, and finance; Hidalgo County, Tex., auditor; and as a receiver of national banks under the U.S. Comptroller of Currency. With the state from 1941 until 1952 he was chief clerk, House Appropriations Committee for the 1941 and 1945 legislatures; assistant state auditor for two years; chief accountant for the State Treasury Department for one year; from 1943 until 1952, when he retired from state employment, Leslie was with the State Board of Insurance, serving as senior examiner and bead of the examination staff for six years and as a casualty actuary for three years.