Consumer Efforts Stepped Up : State’s Insurance Dept. Under Pressure to Change

After years of operating mostly out of public view, catering to the needs of the insurance industry and paying little attention to the consumer, the California Department of Insurance is under pressure to change its ways.

Already in the last year, with the emergence of insurance as a political issue, the department has initiated the beginnings of a more consumer-oriented policy.

In January, the department released its first statistics on what it termed “justified” consumer complaints against automobile insurance companies. In March, it issued its first comparative auto insurance price survey since 1978 for Los Angeles County, where rates are highest. And, under pressure from liberal and minority legislators, in April it set up a consumer’s advisory panel.

In June, Gov. George Deukmejian said he would order the department to conduct a more comprehensive examination of whether insurance rates are too high. In August, following through, the department held its first-ever public hearings on whether liability insurance was excessively priced.

In the weeks preceding the Nov. 4 election, the department stepped up its consumer efforts. It issued its first statewide comparisons of auto insurance rates and released statistics relating to all complaints made to the department, justified or not, against companies during 1985. In addition, the new insurance commissioner, Roxani Gillespie, ordered two companies allegedly engaged in deceptive practices in the sale of health insurance to the elderly to quit doing business. Gillespie said she was anxious that the department be perceived as concerned about the interests of consumers.

But despite all these steps, the department continues to be assailed by consumer groups and legislative critics for allegedly being too cozy with the industry.

The critics allege these shortcomings:

- Failure to initiate adequate inquiries into possible patterns of company abuse, much less take action against them. Legislative critics charge the department is woefully understaffed in investigators and seldom uses those it does have to pursue the worst offenders.

- A record through last spring of never finding any instance of excessive rates by any of the hundreds of companies selling insurance of all kinds in California. There have recently been a few such findings, although no companies alleged to be charging excessive amounts have yet been publicly identified.

- Persistent backlogs in handling consumer complaints. According to the state auditor general’s office, the department was “slow to process” more than 50% of nearly 14,000 such complaints it received in the 1984-85 fiscal year, taking an average of 89 days to act. (The department says the situation has improved considerably. It projects that the number of pending complaints, which was 6,473 at the end of last year, will drop to 4,918 by the end of this year.)

- A lack of advanced computers and other automated equipment to audit the companies the department regulates or to pass comparative pricing data to the general public on a regular basis.

- Overly close relations between the department’s leaders and the insurance industry. Most recent insurance commissioners, in Republican and Democratic administrations, have come to the department from the industry and returned to it when they left office. The newly appointed commissioner, Gillespie, who has not yet been confirmed by the state Senate, was a vice president of the Industrial Indemnity insurance firm before coming to the department.

Lack of Will Cited

“Few persons entering the department from the insurance industry and expecting to return there later would have the temerity to force companies to charge fair rates and live up to their obligations. . . , “ said Carl K. Oshiro, a Consumers Union official. “Still fewer would have the will to develop and push for legislation which would correct the vast disparity in power between the insurance industry and the consumer.”

The department’s conduct became a matter of contention in the gubernatorial campaign with the unsuccessful Democratic nominee, Los Angeles Mayor Tom Bradley, calling for it to exert closer control over insurance companies and criticizing Deukmejian for allegedly not seeing to this.

Bradley, sharpening his attack, charged that Deukmejian was under the thumb of the industry after the governor accepted the resignation of Bruce Bunner as insurance commissioner on June 6, just one day after Bunner affronted the companies by publicly advocating that they be compelled to sell liability insurance to all those willing to pay for it.

The governor’s statement on Bunner’s departure expressed no regrets and gave no compliments for his three years of service.

Bradley, linking the Bunner departure with hundreds of thousands of dollars of contributions the insurance industry had made to Deukmejian’s campaign, charged that the governor decided to “kick” the commissioner “out of office” as soon as Bunner “had the courage to break with the industry and finally come out with a policy in favor of the consumer.”

Deukmejian denied there was any link. He said that Bunner had told him he wished to resign long before and that the resignation just happened to be announced that day.

Several days thereafter, Deukmejian backed Bunner’s mandatory liability proposal, calling at the same time for an unspecified limitation on lawyers’ fees in insurance cases.

This balanced the suggested reforms, directing them against both the insurance and legal professions--two groups often in conflict with one another.

Neither Reform Adopted

Neither of the reforms Deukmejian proposed was adopted by the Legislature in its recently completed session.

In his speech on June 10, Deukmejian also called for legislation requiring more detailed financial reporting by the companies to the Insurance Department and other mild reforms. The financial reporting requirements he wanted were later enacted into law.

Even before the Bunner controversy, the governor’s chief of staff, Steven A. Merksamer, in a letter to the regional director of the Consumer’s Union, had depicted Deukmejian as “proud of his record on behalf of consumers” in insurance. He said the governor should get credit for the Insurance Department’s release of the Los Angeles County comparative auto insurance pricing survey, as well as the establishment of the consumer advisory panel.

Consumer’s Union and other critics, however, charge that such steps count for little against what they say is the department’s overly protective attitude toward the insurance companies. Harry Snyder, the Consumer’s Union director, responded to Merksamer that “the steps that the department has taken to help consumers are illusory and ineffective.”

Years ago, long before the current controversies, the department was designed as a relatively weak agency. Unlike insurance departments in some other states, it does not set insurance rates, except for those in the state’s assigned-risk automobile plan. California, by law, has a competitive system under which all other rates are supposed to be set in the marketplace, and the department’s review authority is neither very specific nor has it been much exercised.

Nor has there been substantial review of claims-payment practices. Douglas Hallett, a Los Angeles attorney who is an expert on insurance regulation, observed recently, “To my knowledge, no insurance company has ever lost its certificate of authority to do business in California nor even had that certificate of authority suspended for so much as one day because of claims practices.”

To such complaints, department leaders say they are becoming more activist, although they plead that their staffing and budget limit their ability to act. The department, which has a budget of $26 million, is financed entirely by licensing and other industry fees.

‘Two-Edged Sword’

Bunner, before his resignation was accepted, said: “I’m in favor of a free enterprise system, but it’s a two-edged sword. If you want freedoms and liberties in free enterprise, as we know it, then you have to be sensitized to some of the social issues of concern. When we have an inner-city problem in auto insurance, the industry has got to mobilize and come together or else you’ve got to give the insurance commissioner some sort of emergency powers to step into the vacuum and solve it.”

But, California Common Cause Director Walter Zelman asks, if such attitudes are, in fact, held by the Administration, why has the Department of Insurance not done much more to assure that the system is as competitive as possible?

Zelman has been after the department to put out more information for the consumer on how to buy auto insurance, where the best deals are to be found and what the pitfalls are. He envisions a system “by which the average individual could go into a Department of Motor Vehicles or Insurance Department office, walk up to a computer, maybe pay a small charge, answer the 10 key questions--their age, their driving record, and so forth--and have a computer printout spew out, ‘Here are the 10 companies writing insurance in your ZIP code who offer you insurance at these rates.’ . . . That would create a competitive environment.”

“The insurance commissioner and the Department of Insurance have a lot of the information . . . and they don’t seem to be particularly desirous of giving it out,” the Common Cause official said in an interview.

Department officials say it is not that simple. Several months ago the department did obtain for its Los Angeles office a computer that lists comparative auto insurance prices for individuals after they answer a series of questions. However, some of the largest sellers do not make available pricing information for the privately run system, so the data is necessarily incomplete.

In any event, both the new insurance commissioner and her predecessor have said it is beyond the capacities of the department to throw open its offices to consumers.

The department currently has only one price computer.

Not Intended for Public

The officials said the intent in purchasing the machine was to provide the department, not the public, with comparative information. Besides, they said, many insurance agents have such machines and consumers can go to them for the rates.

But such answers do not satisfy the department’s critics, who say that insurance agents who handle only certain companies and receive varying commissions from each often cannot be relied upon to let consumers know what the best deals are.

Steven Miller, executive director of the Los Angeles-based Insurance Consumer Action Network, remarked, “If competition is to be a regulator of the marketplace, the burden is on the consumer, and that burden requires that the consumer be educated, informed and critical.”

The importance of pricing information goes undisputed, even from within the industry. For instance, John McCann, California spokesman for the Insurance Information Institute, an industry-sponsored group, acknowledges that “depending on what territory you’re in, you could save between 40% and 60% in your auto insurance, just by shopping around.”

Actually, this is an understatement. The department’s Los Angeles County comparative pricing survey indicated the savings could exceed 200%. For instance, depending on which of 18 companies a Beverly Hills woman used, she could obtain a particular policy for as little as $843 a year (Twentieth Century) or as much as $2,815 (Farmers), according to the figures released in March.

But McCann said the companies would oppose the department releasing such comparisons because those shown to have the lowest rates might get such a flood of business they would not have the capacity to handle it.

Questionable Data

Even when the department has moved to provide more consumer information, it has occasionally seemed, inadvertently, to provide misleading data.

For instance, when the department released justified complaint statistics for 135 auto insurance sellers, it neglected to list any companies against which fewer than three justified complaints had been made. This left out many of the companies with the best records.

In addition, it later developed that some of the companies had been misplaced in the rankings and that others did business under various names, depending on whether they were selling insurance to preferred risks or not. The relatively high complaint ratios against some of their lines of business were distortions of their overall record.

Later, it was revealed by the state auditor general’s office and the legislative analyst’s office that there was a complaint backlog extending back as long as two years, so many complaints had gone unlisted.

In October, when it issued the 1985 complaint statistics, the department tried to correct these shortcomings. It listed all complaints, justified or not, thus dealing with the problem of distortions caused by complaint backlogs, and it pegged its complaint ratios to the number of cars insured rather than premium dollars collected.

The auditor general’s report had noted that on many occasions, it was difficult to get through to make a complaint. In one week in March, for instance, it said consumers had received busy signals over 7,000 times while attempting to telephone the department.

Since then, additional staff has been hired to answer calls, and in October, again shortly before the election, the department inaugurated a toll-free 800 line for callers with the aim of making the department more accessible.

Few Public Results

If the department has made some gestures toward providing more consumer information, its record of reviewing company rates has shown few public results.

According to state law, the department has authority to review any rates it wishes in order to determine if they are inadequate, unfairly discriminatory or excessive and to take corrective action.

One problem with determining how it has done in such reviews is that the department has long refused to make public the names of companies found to have rates judged improper by any of these standards. It justifies this refusal on its interpretation of a vaguely worded statute on keeping certain of its deliberations private.

At a seminar last February, the department’s consumer affairs chief, Everett Brookhart, said that in recent years, no rates had been found to be excessive. He explained:

“We have found instances of inadequacy or unfair discrimination, but never excessive. We have just not gotten to that point yet.”

Recently, however, Commissioner Gillespie said the department would soon make public the names of half a dozen companies judged to have excessive rates based on testimony their officials had given the August hearings on liability insurance.

Gillespie has talked of reform, at least in principle, since taking over as acting commissioner last June, pending state Senate confirmation. But she has also said that unlike her predecessor, she would take care not to get out in front of Deukmejian on the issues, and she has rigorously adhered to that policy.

Bunner Quite Outspoken

Bunner, in the months leading up to his departure, had become quite outspoken in advocating additional power for the department in regulating insurance. The day his resignation was announced he remarked: “A test of how well you’re doing (as commissioner) is if you’re not making a lot of friends in the industry. Then, you’re probably doing a few things right.”

Yet reform comes slowly in the Insurance Department. It took Bunner months to get approval from the governor’s office for the first appointees to a consumers advisory panel to meet within the department, and when the 11 names were finally announced, they included a six-member majority of either insurance agents or public officials.

Bunner had forwarded the consumer advisory panel idea to Deukmejian only under considerable legislative pressure. Since it began meeting in May, the panel has occasionally been outspoken in its criticisms of the way the insurance industry operates.

When Gillespie was named commissioner, she announced that in a compromise with legislative budget writers, about $1 million would be added in the next fiscal year to the department’s budget for such consumer services as the 800 telephone line to receive complaints. But even with the increase, only about one-sixth of the department’s budget will go to consumer services.

The staff that keeps tabs on how well the private companies are performing remains small.

The department’s consumer chief, Brookhart, recently noted, for instance, that only 22 people are assigned--and only part time--to monitor the market conduct, in such matters as settling claims, of the hundreds of insurance companies doing business in the state, while 20 are assigned full time to review the rates they charge. Such reviews are extremely complicated and time-consuming. Under present staffing, only a few are conducted.

The Insurance Department’s staff totaled 434 people this fall.

Scanty Reviews

The auditor general’s report questioned whether the companies subjected to the market reviews were well-chosen. Of the hundreds of companies doing business in the state, only five companies were subjected to such reviews, it said. About $190,000 was spent on these reviews, yet no deficiencies were uncovered. The department, it said, should have looked at the companies only in a preliminary way, and then gone on to review others that seemed to have more problems.

Even McCann, the insurance industry’s California spokesman, says the state government “could easily afford to give the department the additional staffing that it needs to do market examinations more effectively and more thoroughly.”

“One thing,” he added, “the department is not completely automated. How can you regulate a business that is so totally electronically high-tech automated today when you don’t have that equipment yourself?”

Such equipment, department officials say, is expensive. They agree that the department needs to invest more on automation, but they plead lack of funds to do it all at once. Gillespie said that any future increase in department services could be financed by an increase in the fees charged to insurance companies and agents.