Smoke & Fire

In the U.S. some 35 million car owners carry $4 billion in auto-insurance policies to protect themselves against damage claims. Last week it seemed that some owners needed protection against the policies as well.

Months ago the Texas Board of Insurance Commissioners discovered that six auto-insurance firms were overcharging Texas policyholders by misclassifying them in the highest possible premium bracket.

Biggest offender: Service Fire of New York (subsidiary of C.I.T. Financial Corp., which also owns Universal C.I.T., the nation's No. 2 auto-finance company). Service Fire had put more than three-quarters of its policyholders in Class Two, the most expensive risk group, although most of them belonged in Class One, the lowest premium category.* Subsequently, five more companies (Cavalier, Marathon, Consolidated Lloyds, Calvert Fire, Home Service) also were found to be overcharging. All the offenders complained that it was impossible to get enough information to classify policyholders properly. But the Texas commissioners pointed to the fact that Motors Insurance, subsidiary of General Motors Acceptance Corp., the nation's No. 1 auto-finance company, had no trouble getting the information, classified policyholders correctly.

Rebate in Texas. Faced with that, the six companies rebated some $182,000 to Texas policyholders, promised to reclassify everyone and watch their step from then on. But last week the fight started all over again, hotter than ever. This time a regional representative of the National Association of Insurance Commissioners told a meeting in Texas that Service Fire was still classifying motorists incorrectly outside Texas.

At a special meeting in Austin of insurance commissioners from Oklahoma, Kansas, Texas, Arkansas. Nebraska and Wyoming, Service Fire's Counsel J. G. Myerson showed up to discuss the complaint. Service Fire had not come to apologize for any mistakes, said Myerson. In fact, he said, his company's biggest mistake was in rebating the Texas overcharges and "it's not going to be the story elsewhere."

Pocket to Pocket. In the fine print of documents signed by applicants for car financing by C.I.T. is a clause alloting all policy refunds to the finance company, Universal C.I.T., a sister company to Service Fire. So, said Myerson, "if you want to determine that we've overcharged, we'll give it back to the finance company." In other words, if the insurance commissioners demanded refunds, Service Fire would take them out of one C.I.T. pocket and put them in another.

Service Fire President Emil Chervenak (whose company last year paid parent C.I.T. $4,000,000 in dividends on its $2,000,000 capitalization) tried to smooth things over. "We hadn't realized we were so far off and are correcting it," he apologized. "This is a tremendous job because we are a policy factory, and as a result of this we are buried under tons of paper. Our financial competitors are still not doing it." But last week in New York and Oklahoma, the insurance commissions were quietly investigating to see whether their motorists were still being overcharged by Service Fire.

* Class One, good risks, paid a Texas premium of $58 annually; Class Two, drivers under 25, paid $107; Class Three, drivers who did not use their cars much, paid $76.

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