50% Increase in Assigned-Risk Rates Asked

A 50% increase in insurance rates for the 240,000 cars insured under California’s assigned-risk program was requested Friday by the plan’s governing board.

The assigned-risk plan is losing about 30 cents on every dollar it collects in premiums, the governing board said, and unless the increase is approved, regularly insured motorists will be subsidizing to a greater degree the insurance costs of drivers who buy their liability and medical coverage through the plan.

Two main groups, making up about 2.5% of the state’s 17.5 million licensed drivers, are insured under the assigned-risk program.

About 60% of the assigned-risk insureds are substandard drivers who cannot get regular coverage because their driving records are so poor. Others are drivers with good records who live in minority urban areas where insurers are reluctant to sell policies.

Proportionate Assignment

Drivers in the assigned-risk program are assigned to the state’s private auto insurance companies in proportion to the companies’ share of the total business. Any losses in assigned risk are borne by each company’s other customers.

The 50% rate increase, however, would push assigned risk rates so high that insurance regulators are concerned that many assigned-risk drivers would drop their insurance altogether, joining hundreds of thousands of other California motorists who illegally go uninsured. The basic annual assigned-risk premium now averages about $600. No collision or theft is included.

Last year, the state Insurance Department refused to authorize a general increase in the assigned-11 risk rates, and on Friday, state Insurance Commissioner Roxani Gillespie indicated that she is reluctant to approve a big increase this year.

Gillespie said her department “will take a very good look” to be sure that the expenses listed by the assigned-risk governing board--nine of whose 13 members represent insurance companies--are valid. She said hearings will be held in April.

“We accept their figures for how much in claims they are paying out,” Gillespie said. “But their overhead, that’s what we’re really going to zero in on.”

Last year, the Insurance Department undertook to keep the assigned-risk rates from going too high, and it refused a 1985 request by the governing board for a 57% increase.

Instead, it ordered that basic premiums be cut 1.3%, and that surcharges--for the substandard drivers with accidents and citations on their records--be raised by 10.8%.

The effect of this policy has been that assigned-risk premiums are now, in many urban areas, lower than prices for regular insurance.

A result of this situation has been the creation by the state of what amounts to subsidized insurance in the assigned-risk program for drivers who are hardest hit by high premiums under the controversial territorial rating system.

Urban Areas Hit Hard

Under territorial rating, drivers in congested urban areas may pay 300% more for equivalent coverage than do rural and suburban drivers. By opting for assigned risk, such drivers can reduce their insurance premiums below the territorial system.

But the private companies are strong supporters of the territorial rating system, claiming that drivers in congested areas with many accidents should pay for the higher claims costs in those areas.

In its report Friday, the assigned-risk governing board said that in 1985--the latest year for which complete claims and expense statistics are available--the outgo on such policies was more than $50 million higher than premium income.

Assigned-risk program manager David Kuizenga said that in 1985 about $178 million in assigned-risk premiums were paid to participating insurers. He said $176 million had been paid out in claims, and that overhead and commissions for assigned risks was more than $60 million.

68% Hike Called Justified

The governing board said that to recoup its losses, a 68% increase in basic assigned-risk premiums would be justifiable.

But Chairman William Mellick said the board will ask for only a 50% increase in two phases--an initial 25% increase and another 25% six months later.