State-Run Risk Fund, Cuts in Auto Premiums Backed

Moving to resolve an insurance crisis that has left dozens of California communities without liability coverage, a key Assembly committee voted Tuesday to create a state-run insurance fund for public agencies that are considered “too risky” for private insurers.

On an issue closer to the pocketbooks of many consumers, the Assembly Finance and Insurance Committee also approved legislation by Assembly Speaker Willie Brown (D-San Francisco) that would require insurers to cut auto premiums by 5% to reflect lower claims expected as a result of the state’s new seat belt law.

But the measure faces strong opposition from the same insurance companies that once lobbied hard for the seat belt bill and predicted it would dramatically reduce highway deaths and injuries.

“It is very inconsistent to advocate safety features, have those features mandated and then not have that reflected in a reduction in premiums,” Brown told the 17-member committee shortly before it approved his measure by a bare nine-vote majority.

In contrast, there was relatively little opposition to the legislation creating a state-run insurance fund, chiefly because major insurers already have indicated little desire to cover cities and counties in the face of uncertainty over multimillion-dollar injury suits.

According to the County Supervisors Assn. of California, public agencies are facing premiums that have increased by 186% in one year while the amount of coverage has dropped by 35%. At last count 54 California cities were operating without coverage and big insurers predict that two-thirds of the state’s cities will be in a similar predicament by mid-year.

Many of those agencies have joined together in self-insurance pools. However, even by combining resources, most are able to cover only relatively small losses, those of $250,000 or less.

The state-operated fund proposes to offer coverage ranging from $1 million to $25 million by issuing tax-exempt bonds and then repaying the state with premiums spread among cities throughout California.

“We absolutely need the level of coverage provided for in this bill,” said Assemblyman Dan Hauser (D-Arcata), the measure’s sponsor.

Concern Over Losses

Victor Slavin, lobbyist for the American Insurance Assn., predicted, however, that problems would still exist, saying “the mere fact that you have a state fund will not in any way reduce losses.”

The Hauser bill is one of several strongly supported by Brown and other key Democrats as an alternative to the hotly debated June ballot initiative, Proposition 51, that would rewrite liability law to bring down the cost of some injury suits.

Brown instead has focused on measures to force insurance companies into providing coverage at an affordable rate and says he intends to introduce major legislation along those lines in a few weeks.

The Speaker’s bill that ties a 5% reduction on auto premiums to the state’s recently enacted mandatory seat belt bill law would similarly give the state a major role in setting motor vehicle insurance rates.

Motorists with records free of citations for failing to use their seat belts would be entitled to the 5% discount under the measure, and drivers of air bag-equipped cars would automatically receive a 30% discount on liability premiums. (The seat belt law, which took effect Jan. 1, also requires installation of air bags on new cars sold in California beginning in 1989.)

Effects of New Law

Brown, who authored the seat belt law, argued that it already has made its mark in reducing highway injuries and that motorists ought to get a break on their insurance rates. “I think that this will benefit people of this state in a way that will encourage them to use their seat belts,” Brown added.

Insurance company lobbyist Clay Jackson, who was a major backer of the seat belt bill, said he had a “philosophical difference” with Brown and that the 5% rate reduction mandated by the measure “just isn’t based on any loss statistics.”

Recent figures supplied by the California Highway Patrol show that traffic deaths have declined 1.7% since the seat belt law took effect. New York, the first state to mandate seat belt use, reported a 17% drop in traffic fatalities in the first nine months of enforcement.

One insurance lobbyist, however, said that seat belt use often turns potential fatalities into injuries and that injuries often are more costly to insurance companies than deaths.