Cost Crisis on Insurance to Spread to Cars, Panel Warned

The top lobbyist for California’s private insurance companies said at a legislative hearing in Los Angeles Monday that the liability crisis affecting municipalities and businesses will soon spread into automobile insurance, causing “the same problems,” including sharp premium increases.

Clayton Jackson, legislative representative for the Assn. of California Insurance Companies, derided as infeasible a bill by state Senate Democrats that would mandate premium reductions of up to 25% for people with good driving records and safety equipment on their cars. The hearing was headed by Sen. Alan Robbins (D-Van Nuys), who is the principal author of the bill.

Jackson, supported by George Joseph, president of Mercury Casualty Insurance Co., told a three-hour hearing of Robbins’ Senate Committee on Insurance, Claims and Corporations that the state’s automobile insurers are losing money now and that--far from reductions--further rate increases are a necessity.

The lobbyist did not say precisely how big the increases may be. However, the municipal and business liability crisis he referred to has engendered increases ranging as high as 500% and severely restricted the availability of many types of coverage.

‘Serious Jeopardy’

Robbins, describing the current level of insurance premiums as an “honest-to-God crisis,” told the hearing that the insurance “system itself is in serious jeopardy.”

He added, “The overall cost of the system is too expensive for everyone to pay.”

Jackson, who is considered one of the state’s most influential lobbyists, took exception to that analysis.

“It is not in a crisis,” he said. “It is in severe difficulty in Los Angeles County (where premiums are highest) but not in most of the state.”

Much of Monday’s hearing was marked by wrangling over whether there is sufficient money to support premium reductions.

Robbins, backed by a report from the Senate Office of Research, said that people buying insurance under terms of a mandatory insurance law he authored that took effect last year have created a pool of nearly $800 million that could be used by the private companies to fund rate reductions for good drivers.

The state Supreme Court suspended operation of the law in December, while it considers a lawsuit alleging that it discriminates against people living in territories where the premiums charged by the companies are higher than the norm. Despite this, however, Robbins and Senate researcher Dick Damm estimated that the number of uninsured vehicles in the state had been reduced from about 1.9 million at the beginning of 1985 to about 920,000 at the end of the year.

The insurance company representatives challenged the estimate as erroneous. They said a better estimate would be that the reduction was only about 200,000 vehicles.

And in any case, they added, no pool of money has been created that could be used to reduce premiums, because the companies are losing money on the policies they write, and when new ones are written, particularly for motorists who have not been insured before, they lose even more money.

Although the hearing had been called to take public testimony, speeches by Robbins and several other legislators took up about half the three hours. Nonetheless, there was a stream of witnesses complaining about high rates and supporting another bill in the Senate Democratic package that would reduce by half the present mandatory liability insurance limits for senior citizens, no matter where they live, and for all people, regardless of age, living in territories where the premiums exceed the state norm by 25% or more.

Legal Limits

The present legal limits require every motorist to carry $15,000 liability coverage for a single accident victim, $30,000 for multiple victims and $5,000 for property damage. Rates for such coverage in Los Angeles County and other urban areas can easily be $700, $1,000 or even more, depending upon in which ZIP code area one resides.

According to territorial rate differentials set by the more than 200 companies selling automobile insurance in the state, a person living in a ZIP code area where risks are high can pay two or three times the premium paid by a person living in a ZIP code area of lower risk. Many of the high-risk areas are in economically deprived neighborhoods, meaning that those who can afford insurance the least often have to pay the most.