State to Require Insurance Firms to Report Liability Hikes, Justify Some

The state Insurance Department will soon begin requiring private companies selling commercial liability policies in California to notify it of rate increases and to provide justification for them when they “exceed a permissible range,” acting Commissioner Roxani Gillespie said Tuesday.

In holding out the possibility that the department will find some of the increases to be excessive and order the prices restrained, Gillespie appeared to be ready to take administrative steps that would move California for the first time toward insurance rate regulation. She said she could act under existing law.

Gillespie said a report defining the “permissible range” of increases and summing up conclusions from eight days of just-concluded public hearings into the liability insurance crisis will be issued in late September. She indicated that the notifications and justifications would be required from that time forth.

She added that if the new system worked out well in liability insurance, it might later be extended to personal lines of insurance--auto and home policies--as well.

At its strongest, the new system would constitute indirect rate regulation. The Insurance Department would be in the position of being able to disapprove some rate increases, rather than having to approve all such increases. Its position would be subject to possible court challenge by the companies affected.

Left Some Doubt

A leading consumer advocate, Steven Miller, executive director of the Insurance Consumer Action Network, hailed Gillespie’s announcement as “a very positive step.”

However, other statements by Gillespie left some doubt as to how much of an effect it would have on rate increases.

Gillespie, for instance, said at one point that the department might consider recent 300% price hikes within the “permissible range,” given what it has concluded is a poor profitability situation faced by many companies.

“Maybe prices are right on right now,” she also remarked.

But she said that in the eight days of hearings that ended Tuesday, she and her aides had concluded in a half dozen cases that liability rates quoted by company representatives were “excessive” within the meaning of the state Insurance Code, which says the Insurance Department can take action to bring down rates it has decided are excessive.

Gillespie said that in a precedent-setting action, the Insurance Department will publish the names of companies deemed to be charging excessive rates when it issues its report next month, along with suggestions for how much they should be brought down.

In the past, the Insurance Department has secretly sought remedial action by the companies and has refused to announce the offenders’ names, even after the fact. In any case, there have only been a few instances of rates deemed excessive, and those have occurred only in recent months.

As late as last February, the Insurance Department’s chief of consumer affairs, Everett Brookhart, said the department had never found a rate excessive.

Firms Testified

Gillespie said 26 companies had testified in the hearings. Her remarks about half a dozen findings of excessive rates indicated that nearly one-fourth of the companies would be asked to reduce at least some of their commercial liability rates.

Commercial liability includes liability policies purchased by municipalities.

Gillespie also said the hearings had demonstrated to her satisfaction that “financial results for the property-casualty insurance industry were the worst in its entire history” in the years 1984 and 1985.

This, she said, justified certain sharp rate increases, but she said the Insurance Department in the future hopes to “smooth out” such increases, so they don’t all come at once.