Report Urges Controls for Car Insurance
A lengthy report on automobile insurance in California prepared at public expense for the state Assembly by a leading critic of the insurance industry has called for legislation giving the state the power to approve auto insurance rates.
The $197,000 report by J. Robert Hunter, president of the National Insurance Consumer Organization of Alexandria, Va., says that Californians have paid $200 million more for auto insurance in the past 10 years than they would have “if California profit levels were equal to the national average.”
In 1985, it adds, private passenger auto insurers in California earned after-tax profits averaging between 17.2% and 32.7%, depending on accounting procedures followed.
“California is now one of only five states where voluntary market private passenger automobile insurance rates are subject to no regulatory influence or control,” Hunter says in the 350-page report handed to Assembly Speaker Willie Brown (D-San Francisco), who released it.
‘Standard Rule for All’
“The Legislature should implement a competitive market standard rule for all . . . markets in the state, and, where the standards are not met, prior approval of insurance rates should be required in order to limit discrimination and prevent the charging of excessive insurance premiums,” Hunter concluded.
Taking quick issue with the report was the chief lobbying group for the insurance industry in California.
“It’s obvious from the report that it’s the same aggregation of half-baked ideas and unsubstantiated charges that Mr. Hunter has been making throughout the country the last few years,” said George Tye, an official of the Assn. of California Insurance Companies.
“Its implementation of a system of prior (rate) approval would result in no benefit to the public,” he added. “As evidence of this, the six states or jurisdictions with the highest auto insurance rates are all prior-approval states--New Jersey, Massachusetts, New York, Alaska, Pennsylvania and the District of Columbia.”
An associate of Hunter in the report preparation, Steven Miller of the Los Angeles-based Insurance Consumer Action Network, challenged Tye’s assertion Wednesday, saying that a 1986 report of the federal General Accounting Office found that costs of auto insurance were, on the average, higher in states without rate regulation than in states with it.
Encountered Delays
A 19-page appendix to Hunter’s report asserts that those preparing the study had encountered many delays, evasions and outright refusals to cooperate in providing information from the insurance companies and their Sacramento lobbyists. In particular, it complains of the conduct Clay Jackson, an associate of Tye.
The lack of cooperation meant that the researchers could not obtain information that would have verified whether charges of racial discrimination in the sale of auto insurance in California are merited, as was indicated by statistical analysis, the report says.
Tye said Wednesday: “The Legislature hired an expert that every knowledgeable observer knows to be extremely biased, and we were therefore very wary of dealing with this individual.”
Much of the first section of the report constitutes an analysis of company profits, and what is particularly examined from a critical standpoint is the insurance companies’ policy of setting aside billions of dollars in reserves against anticipated future claims and claim adjustments. Hunter sharply questions whether these undiscounted reserves are not a means for the companies to hide their profits and reduce their taxes.
