Gillespie to Bar Territorial Auto Insurance Rates
Insurance Commissioner Roxani Gillespie Tuesday ordered the state’s auto insurers, beginning Nov. 8, to disregard where a driver lives in setting rates.
Instead, insurers must use the Proposition 103 pricing criteria--a driver’s safety record, miles driven and years of driving experience.
The temporary order, coupled with Gillespie’s decision on Monday to cap rates, could mean significantly lower rates for inner-city drivers, but insurance industry lawyers immediately vowed to challenge the directives in court.
Insurance companies have long contended that following the Proposition 103 pricing criteria would mean big cuts for inner-city drivers, or about 30% of the policyholders, and big increases for the other 70% who live in suburban and rural areas.
Change of Position
Now Gillespie, who as recently as Monday said she agreed with that analysis, apparently is ordering the companies to adopt criteria that would mean cuts for some drivers while prohibiting the insurers from increasing rates for others.
Some of the cuts could run to thousands of dollars, if the companies really followed Gillespie’s order by suspending for an indefinite period the so-called territorial rating system, under which drivers in congested urban areas pay up to 10 times more than rural drivers for the same coverage.
In addition, the three-page emergency order Gillespie issued Tuesday declares that after Nov. 8, insurers must grant the good-driver discount called for in Proposition 103.
It is not clear that “good drivers,” those with no more than one minor traffic violation, would get the full 20% discount mentioned in Proposition 103. Department attorney Reid McClaran said that if a company can show that there already is a 20% or greater differential between the premiums it is charging good and problem drivers, the state may not require the insurer to offer additional reductions for good drivers.
Gillespie’s order is likely to be altered after a new round of hearings on Proposition 103 implementation scheduled by Gillespie to start Oct. 30, but those hearings could last for months.
Insurance industry lawyers reacted quickly to Tuesday’s announcement, vowing to fight the new regulations in court.
Frank Rothman, lead attorney for the industry in its original challenge of Proposition 103 before the state Supreme Court, said that Gillespie’s order, if fully implemented, could lead to a 25% to 30% reduction in total premiums in the $12-billion-a-year California auto insurance market, and that would be a violation of the Supreme Court order in May that the companies be allowed a fair rate of return on their business in the state.
‘We’re Going to Attack’
“We’re going to attack this regulation,” Rothman said. “I can attack it in three places, in the Sacramento Superior Court, where there is a case already pending, in a new case brought in some other Superior court, or we can go directly to the state Supreme Court. I will go to one of the three. A suit will be filed, but we haven’t decided yet exactly where.”
Adherence to the neighborhood pricing system has been a cornerstone of industry policy for decades, and the industry has fought all efforts to alter it in California and other states, although in some states in recent years not with success.
Meanwhile, it remained unclear whether or how the industry would challenge Gillespie’s rate freeze order on Monday.
At the Farmers group of companies, where a 5.9% general rate increase that was to be effective Nov. 1 has been ordered canceled by the insurance commissioner, spokesman Jeff Beyer said the company had three alternative courses of action under consideration.
“We can either acquiesce, challenge the freeze in court or proceed to implement the increase and wait for her to come after us,” Beyer said. “I don’t know what our decision is going to be or when it will come.”
Meanwhile, Gillespie aides made these points about the rate freeze:
- It does not apply to persons who had already received rate increases in the mail before Monday and had not yet paid their bills.
- Companies can still increase a driver’s rates if there is a major change in the policyholder’s circumstances, such as a drunk driving conviction, an accident, a substantial increase in the number of miles driven or the purchase of a new, more expensive car.
Regardless of these restrictions on the freeze, many insurers continued to criticize Gillespie Tuesday for ordering it.
A leading insurance company executive, long active in the industry’s lobbying and campaign efforts, said he now feels that Gillespie will prevent any general rate increase from going into effect until after November, 1990, when she hopes to become the state’s first elected insurance commissioner. Asking not to be quoted by name, he said he believes the commissioner’s recent actions are politically motivated.
Another industry official, Bob Pike, general counsel of the Allstate Co., said the Gillespie orders of the last two days have confronted his and other companies with “one of the most difficult challenges we’ve ever had.”
“She’s asking us to do something that we can’t do,” Pike said. “And if she doesn’t issue some clarification within the next two days, then I suspect the courts of California are again going to be deluged in a sea of litigation.”
Some Grudging Support
Some consumer advocates long critical of the commissioner gave Gillespie, a Republican appointed by Gov. George Deukmejian, at least grudging support.
“I believe she’s acting correctly, if clumsily,” said Harvey Rosenfield, author of Proposition 103 and chairman of the Voter Revolt organization. “For a year now, the companies have been put on notice that territorial ratings would at least be diminished. They filibustered through hearings all summer, they’ve been gouging us for years, and now the time has come for them to shut up and obey the law.”
Board of Equalization member Conway Collis, a candidate for commissioner backed by Rosenfield, saying he feels Gillespie’s department at last “is trying to implement some fundamental readjustments.”
But two other potential Democratic candidates for the commissioner post were not ready to give Gillespie credit.
Television commentator Bill Press said, “I think Roxani (Gillespie) has only succeeded in confusing the consumers and confusing the insurance industry. My reaction to her freeze order is that she is trying to apply a tourniquet after the patient has already bled to death. The insurance companies have been raising their rates since last November.”
And Common Cause director Walter Zelman called Gillespie’s department “a totally rudderless ship. The Department is here today and there tomorrow. The department has no plan, or if they have a plan, it’s changed in 24 hours. It is clearly evident it is floundering.”
Meanwhile, Deukmejian supported Gillespie’s order banning all rate increases, although he asserted he had not been informed of it in advance. He called the freeze good for consumers and an aid to Gillespie as she proceeds to decide details of implementing Proposition 103.
