July 22, 2011 Howard M. Eagelfeld Actuary Property & Casualty Product Review Office of Insurance Regulation

Tallahassee, Florida 32399-0330 Re: Metropolitan Casualty Insurance Company PPA/Private Passenger Types (Autos Only) OIR File Number: FCP 11-06978 Mr. Eagelfeld: During a recent discussion with Metropolitan Casualty Insurance Company (MetCas) regarding the above referenced filing, you expressed concern that it may violate the prohibition against free insurance found in FSA s626.9541(1)(n). You suggested that MetCas submit a request for a review by the OIRs legal staff of this issue prior to our refilling of this program. Please consider this correspondence to be such a request. Background MetCas has submitted to the Insurance Division an innovative and simplified approach for new vehicle purchasers and lessees to obtain automobile insurance. This new In The Car (ITC) program has been filed in most states. This program works in conjunction with General Motors (GM). GM is introducing a program during which purchasers or lessors of each eligible new vehicle will automatically be provided with a MetCas automobile insurance policy, paid for by GM on behalf of the customer. The cost of the insurance is not added to the price of the car, but is paid from GMs promotion budget. Eligible vehicles are determined by the vehicle manufacturer and currently have been set at model year 2010 and newer vehicles. Customers may choose at their own expense to retain their existing insurance or to purchase insurance from a different company. In that case, the MetCas policy will provide excess coverage. The customer may decline to participate in this program and would, therefore, not receive any coverage or benefit for the newly purchased or leased vehicle.

Policies will remain in force for the annual policy period, regardless of the customers driving record, as long as the customer owns or leases the vehicle. If the policy is cancelled for any reason, only the unearned premiums paid by the insured for an enhanced coverage option will be refunded to the insured. The customer will not be refunded unearned premiums paid by GM. Once the customer has taken possession of the new GM vehicle, an automobile insurance policy will be issued using our currently filed and approved auto policy and endorsements. A new endorsement specific to this program along with simplified policy declarations have been developed. Upon expiration of the program policy term, MetCas will notify customers of their upcoming expiration dates and discuss options available to them for continuing coverage for their vehicles. Subsequent policy terms will be issued at the customers expense and are subject to underwriting guidelines. Issue Does the ITC program violate the restrictions against offering free insurance as an inducement to the purchase of goods or services as prescribed in FSA 626.9541(1)(n)? Discussion I. ITC Program Policies are Not Free We respectfully submit that the ITC program does not violate any of the restrictions against offering free insurance under FSA 626.9541(1)(n). That section provides:

Unfair methods of competition and unfair or deceptive acts or practices

(n) Free insurance prohibited.

1. Advertising, offering, or providing free insurance as an inducement to the purchase or sale of real or personal property or of services directly or indirectly connected with such real or personal property.

2. For the purposes of this paragraph, "free" insurance is:

a. Insurance for which no identifiable and additional charge is made to the purchaser of such real property, personal property, or services.

b. Insurance for which an identifiable or additional charge is made in an amount less than the cost of such insurance as to the seller or other person, other than the insurer, providing the same.

ITC program policies are not free. The premium is paid by GM from its sales promotion budget for each customer who agrees to participate in the program. The premium is paid from GMs sales promotion budget. We are aware of no Florida law that prohibits a third party from paying premiums on behalf of another (e.g., a parent paying for a child). II. The ITC Program is not and Inducement Blacks Law Dictionary (9th Ed. 2009) defines an inducement in the contractual context as the benefit or advantage that causes a promisor to enter into a contract. In other words, an inducement must be the cause for entering into the contract, without which the contract would not be formed. A customers decision to purchase or lease a vehicle is based upon his or her affordable price range and desired features. These are the primary determinants in deciding whether to purchase or lease a vehicle, a decision the consumer will already have made. Common experience tells us that while insurance may provide an incentive to choose one vehicle over another, no customer will be induced to make a purchase of several thousand dollars because of the availability of an insurance policy. This view is borne out by some of the recent press coverage of the introduction of the ITC program in the Pacific Northwest. As one report put it, the ITC program while unprecedented and exciting, shouldnt have all that much influence on your car-buying decisions. Its nice, but it doesnt pack enough value on its own to make snapping up the first Buick you see a good idea. Accept the free insurance in the same way youd use any cash-back or 0% financing incentive.1 It is realistic to expect consumers already in the marketplace to consider the ITC program as one factor in deciding which car to buy. It is not realistic to expect consumers to be induced to enter the marketplace for a car solely or even primarily because of the ITC program, without which the purchase or lease would not be made. III. The ITC Program is Consistent with Public Policy There are no public policy considerations adversely implicated by the ITC program. Fourteen states in addition to Florida impose laws and/or regulations that restrict

1 Buy a New Car, Get Free Insurance for a Year, http://moneyland.time.com/2011/07/07/buy-a-gm-car-get-free-auto-insurance-for-a-year.

providing free insurance or insurance without a separate charge to the insured.2 Although we have found only limited legislative history in those states with such restrictions, it appears they were generally enacted to address concerns that either are no longer relevant or that are not present in the ITC Program:

Unenforceable contracts. Historically, insurance carriers were able to escape liability under policies where no mutual consideration was exchanged between the insurer and the insured. Most no free insurance states define free insurance as insurance for which there is an identifiable or additional charge for less than the cost of the insurance to any other person. In this case the insurance is not free; MetCas charges and receives a premium that is paid by the manufacturer for each policy accepted by the consumer. MetCas will commit not to assert such lack of consideration and, we respectfully submit, no modern court would entertain such a defense.

Twisting. In certain circumstances consumers were encouraged to cancel

in-force coverage for the lure of free coverage based upon misrepresentations of the features or benefits of the offered coverage. Today, insurance forms, disclosures and advertising are heavily regulated. Moreover, in this case, there is no in-force coverage as the ITC Program is available only with the purchase or lease of a new vehicle. Additionally, there is no misrepresentation of the features or benefits of the offered coverage.3 They are clearly disclosed in the Welcome Package, FAQs and policy terms.

"Tying." Tying involves a purchase of goods or services that is "tied" to or

dependent upon the purchaser's acceptance of an offer of insurance. Under the ITC Program, the consumer is free to accept or decline the offer of insurance. The purchase or lease of the vehicle is not dependent upon the customers participation in the program, and declining the coverage will have no impact upon a dealers accepting the purchase or lease.

2 The fourteen states are Alabama, California, Georgia, Hawaii, Indiana, Kentucky, Mississippi, Nevada, New Hampshire, Oklahoma, Oregon, Pennsylvania, South Carolina and South Dakota. Oregon is one of two states in which an ITC pilot program was launched on July 6, 2011. 3 Department of Insurance and Treasurer v. American Family Benefits Group, 1995 Fla. Div. Adm. Hear. LEXIS 4190 (March 28, 1995); see also Miss. Ins. Dept. Reg. F&C 37-1, Prohibition of Twisting Insurance Products.

Unlicensed Activity. Some states were concerned that offers of free insurance would be made by persons or entities not properly licensed to engage in the sale, solicitation or negotiation of insurance. The ITC Program Welcome Kit and Dealer Training materials make clear that no dealer may discuss specific insurance policy terms or conditions with the customer or potential customer. The customer is referred to / contacted by the MetLife Auto & Home Sales and Service Center, prior to issuing the policy, and our licensed customer service representatives address and answer all coverage questions. If a customer does not call us, we will contact the customer within 3 days of the sale or lease to discuss the program prior to issuing the policy.

Accordingly, we respectfully submit that the ITC program violates none of the public policy considerations underlying the Florida statute. IV. The Cost of the ITC Policy is not Part of the Price Package for the Car The Florida statute goes on to provide:

(p) Insurance cost specified in "price package".

1. When the premium or charge for insurance of or involving such property or merchandise is included in the overall purchase price or financing of the purchase of merchandise or property, the vendor or lender shall separately state and identify the amount charged and to be paid for the insurance, and the classifications, if any, upon which based; and the inclusion or exclusion of the cost of insurance in such purchase price or financing shall not increase, reduce, or otherwise affect any other factor involved in the cost of the merchandise, property, or financing as to the purchaser or borrower.

The cost of the ITC program policy is not included in the purchase or lease price or financing of the vehicle. While the consumer has the option to decline the insurance, the price of the vehicle remains the same and is not embedded or otherwise hidden in the vehicles price or passed on to the consumer. The cost of the insurance is paid from GMs sales promotion budget, similar to how it pays for other similar sales promotions (e.g., cash back, low interest rate financing, service and maintenance programs). As the insurance cost is not passed on to the consumer, whether or not a consumer participates in the program has no impact upon the MSRP (Manufacturers Suggested Retail Price). Dealers pay for their vehicles when they are produced and invoiced from GM. Sales promotions can be introduced at any time and apply to those vehicles sitting unsold, but paid for, on the GM dealers lot. As the cost of any sales promotion is budgeted

separately by the manufacturer it should not be, by law, included in the MSRP and passed on to the consumer; indeed, it can not be since the vehicle has already been purchased by the dealer. The posting of a dealer sticker is governed by the so-called Monroney Act, 15 USC 1232, which requires that the suggested retail price, including the cost of accessory or optional equipment, shall be stated in the price sticker affixed to the vehicle. The purpose of such a law is to ensure that consumers have the ability to compare prices between similar products. See Giant Food Inc. v. FTC, 322 F.2d 977 (USDC, 1963), cert. denied, 376 U.S. 967 (1964). If in fact the cost of insurance was somehow embedded in the cost of the vehicle, GM would be in violation of the Monroney Act by not including the cost of the insurance (or other sales promotions) on the sticker. Manufacturers do not include sales promotion costs in the MSRP since the Monroney sticker must reflect the true price of the vehicle. The fact is, because the cost of sales promotions comes out of GMs sales promotions budget, the MSRP remains the same whether the consumer participates in the program or not. As such, the cost of the insurance need not be included in the vehicles price package under FSA s626.9541(1)(p). Conclusion We look forward to OIRs legal review of this issue and trust that it will dsclose that the MetCas filing of the ITC program does not violate FSA 626.9541(1)(n). Should you need any additional information please let us know. Sincerely, Charles P. Cavas