Tightening Up on Insurance Firms Tough, 2 States Find

As Gov. George Deukmejian and other officials begin pushing for tighter regulation of insurance companies selling commercial liability coverage in California, developments in two other states that have advanced even stronger controls show that implementing new rules may not be easy.

In Florida, eight companies--including some major sellers--reportedly had served notice as of Wednesday that they are freezing sales of new commercial policies while they consider the effects of a law passed by the Legislature there Friday that would roll back premiums as much as 40% and give the state insurance commissioner the authority to rule on future rates.

The companies sent out their freeze notices even before Florida Gov. Robert Graham had received the bill, apparently in hopes of preventing it from becoming law. A Graham spokesman said Wednesday that the governor has not yet decided what to do on the bill.

In West Virginia, the Legislature was forced to back down last month from a law it had approved in March that imposed strict loss-reporting requirements on the companies and curtailed their rights to cancel policies. The lawmakers reversed themselves after five companies sent thousands of cancellation notices to policyholders.

In one such notice, Continental National American of Chicago told customers, “The termination of your coverage (on May 31) is the direct result of West Virginia Law SB 714, which effectively prevents us from operating our business as was intended under the free enterprise system.”

The Republican governor, Arch A. Moore Jr., proposed formation of a state-operated insurance company to provide liability coverage, but West Virginia legislative leaders decided that it would be too much, and before the May 31 deadline could go into effect, they voted to revise the bill to remove features to which the companies most objected. The chairman of the lower house’s Judiciary Committee said the companies had “a gun to our heads.”

Insurance industry spokesmen have said that both the Florida and West Virginia legislation would have imposed impossibly onerous requirements for financial disclosure or forced the companies into a situation where they would lose money.

However, industry critics have charged the companies with threatening customers in these states in hopes of discouraging similar reforms in others.

In West Virginia, in the meantime, the state attorney general has sued several insurance companies for allegedly colluding to destroy the state’s law. In Florida, the state insurance commissioner has suggested that a similar suit might be filed there.

In Washington, the chairman of a House subcommittee that oversees insurance issues, Rep. James J. Florio (D-N.J.), questioned Wednesday whether individual states had the practical ability to adequately regulate the insurance companies at a time of fast-rising rates.

The federal government, which has left almost all insurance regulation to the states, might have to get directly involved if the states do not do the job, Florio suggested.

‘Not Unlimited’

“The public’s patience is not unlimited. The states must act. There must be results,” he said.

In California, Gov. Deukmejian proposed in a speech Tuesday that under some circumstances, insurance companies be compelled to join in an assigned risk-type plan to provide municipal and commercial liability coverage to all would-be buyers.

He also suggested, in general, that the companies be required to provide more financial data and that the new insurance commissioner, Roxani Gillespie, should “thoroughly investigate high insurance rates.”

Gillespie said Wednesday that most of Deukmejian’s suggestions would require legislation and could not simply be implemented administratively. However, the power of both the insurance and legal lobbies has often succeeded in blocking meaningful reforms in the California Legislature.

Rollback Imposed

The lobbies have not always been so effective in Florida and West Virginia. Both states moved to compel the companies to provide detailed justification for their rates, and the Florida Legislature went further than any other thus far in voting to impose the 40% rollback in rates, with some authorized exceptions, for the last quarter of this year.

This actually amounts to only a 10% rollback for 1986 as a whole. However, the law also would mandate rate-making authority for Insurance Commissioner Bill Gunter, beginning next January, with his base guideline being the Jan. 1, 1984, prevailing rates. This was before the price spiral in liability insurance really began.

Cigna Corp. was one of the companies to announce a freeze in selling new policies until it could “determine the law’s overall effects on our insurance operations in Florida.”

A spokesman for Cigna said Wednesday that some time ago, confronted by rising losses on liability policies in many states, the company “instituted very strict underwriting guidelines for our company and took a very close look at individual lines. . . .”

‘Lose Money’

“We have tried to stay in every market that we can . . . (But) we have decided not to write business where we’re going to lose money,” he said.

The spokesman, Jim Beattie, said Cigna is one of the top three liability sellers in Florida, doing hundreds of millions of dollars of business there each year. Other big sellers to announce a freeze were Aetna Life and Casualty Co., USF&G; Corp. and Continental Corp. Florida, in contrast to the small West Virginia market, is the sixth biggest insurance market in the country.

Meanwhile, Bob Morgan, president of Cincinnati Insurance Co., said: “We mailed a letter to our agents Monday stating that we will not write any new commercial insurance in Florida. We’re taking a look at the legislation that they passed. If we don’t believe we can make money, we won’t renew (policies either).”

Morgan said he took the Florida legislation more seriously than West Virginia’s. The West Virginia Legislature probably did not fully realize what it was doing, he said.

Not Believed

“Florida was deliberate. People don’t believe anything we say down there. . . . We haven’t made money in Florida since 1981,” he said.

In Los Angeles, Steven Miller, executive director of the Insurance Consumer Action Network, declared Wednesday: “I think what we are observing here is obviously an effort on the part of the insurance companies to exert their extraordinary economic and political muscle in an effort to hold lawmakers hostage to achieve a result favorable to the industry. . . .

“Whenever legislation is contemplated that translates into a benefit to consumers, the threat by the companies is always, ‘We will pull out of the state.’ ”

However, a Sacramento-based representative of the insurance industry, George Tye, said that in his mind, the point the companies are trying to make in Florida is simple: “They would lose money, if they cut rates 40%.”