Sunday, September 16, 2001

The state Insurance Commission is investigating Hawaii
auto insurers, but the companies claim they have not
been informed of any specific violations.

Insurance firms,
commission at
odds over policies

State insurance commissioner
released a statement about legal
violations, but has yet to inform
companies of their wrongdoing

By Lyn Danninger

Since state Insurance Division investigators audited several local insurance companies last month, company officials have heard nothing from the division. They have, however, read newspaper stories about how their companies have violated state law.

State Insurance Commissioner Wayne Metcalf issued a press release Sept. 8 announcing that after a three-week investigation his division found a number of insurers violated rate-setting laws. But the division has yet to officially notify the companies.

Other than the audits of their records carried out on-site by division investigators, insurers say they have yet to receive any communication on what they may or may not have done wrong.

"It's hard for me to react because we have yet to see something. I still haven't received anything from the commissioner's office," said Robin Campaniano, president of AIG Hawaii.

Metcalf said the division's findings obtained during the audits are just the first step. A press release was issued, he said, to let the public know the status of the investigation, and he will follow up with the companies as more information is collected.

The next step will be to examine insurers' underwriting materials. Some of those will take longer to obtain than others, he said. The underwriting materials of some Hawaii auto insurers are kept by their mainland corporate parents.

"With respect to those carriers who have no underwriting materials here, we are awaiting those manuals," he said.

Metcalf said obtaining the manuals is an important part of the investigation.

"The underwriting manuals in significant degree form the basis on which they place people. Many companies own several subsidiaries. They place good risks with one subsidiary, higher risks in another and so on," he said.

Metcalf said it was too early to say what sanctions may be imposed on insurers who are violating the law.

"We will be proceeding without question to enforce the statute against all carriers who are not in compliance," he said.

"In terms of sanctions, they will be based on any corrective action they take, continued violations where violations exist and the like," he said.

In the meantime, Honolulu law firms have filed two related class-action suits in state Circuit Court on behalf of policyholders against Progressive Insurance Co. and State Farm.

A suit filed by attorney Bruce Wakuzawa last week alleges that Progressive Hawaii Insurance and related companies overcharged Hawaii consumers by basing premiums either on credit reports or other criteria that are prohibited by state law.

A second class-action suit against State Farm Insurance Co. was filed Friday in the same court by attorneys Thomas Grande, Margery Bronster and Jim Bickerton.

That suit alleges State Farm illegally surcharged policy holders based on information gained from credit reports. The suit also asks that State Farm issue a written notice to each of its customers explaining how and why the credit bureau rating was used to determine the surcharge.

The suit ultimately seeks repayment to the policyholders who were overcharged by State Farm, Grande said.

"State Farm has lined its pockets at the expense of Hawaii's poor and it needs to repay illegally collected premiums," said Grande.

State Farm spokeswoman Carolyn Fujioka said she had not heard about the suit and could not comment.

Hawaii's anti-discrimination law was enacted in 1987. It specifically prohibits insurers from considering things like race, age, ethnic background, marital or credit status or physical disabilities. But Hawaii's auto insurers have had some differences with the insurance commissioner on how to interpret the statute and how it applies to setting rates.

AIG's Campaniano said he is not entirely sure what his company has done wrong, but it may be related to the company's younger policyholders.

In a press release, the Insurance Division said the company used age as a factor in determining premiums.

"We think that what they are accusing us of doing affects only young drivers who have multiple moving violations," Campaniano said.

"Again it's speculating," he said. "Their investigators talked to our underwriters who indicated that."

"But what we are trying to do with this policy is to make sure that young drivers such as those who are racing or have DUIs do not get the same rates as other more responsible drivers," he said.

It's unfair to charge good drivers the same rates as those with poor driving records, Campaniano said.

Campaniano said he also wants to know if the company's violation is considered a technical violation or is really substantive.

"The question is how significant are these findings?" he said.

For DTRIC, another Hawaii insurer, the Insurance Division said the company illegally used drivers' marital status to set rates.

DTRIC's vice president of underwriting, James Gormley, said while the company had not received anything in writing from the division, it had written to the commissioner agreeing to stop using the criteria.

"We don't agree completely with the Insurance Division's assessment of our situation, but we have agreed to stop using the criteria in question."

"We respect their opinion -- they're the regulator," Gormley said.

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