State Control Over Sizable Insurance Rate Increases Sought

A coalition of 25 consumer groups announced here Thursday that legislation will be introduced in Sacramento that would, for the first time, require state government approval of any sizable insurance rate increases in California.

The bill, to be authored by Assemblyman Lloyd G. Connelly (D-Sacramento), also would mandate creation in the state attorney general’s office of a unit to represent consumer interests during the ensuing rate deliberations of the state Insurance Department.

Consumer advocate Ralph Nader joined Connelly and representatives of the consumer groups at a press conference to announce the plan.

Insurance industry spokesmen have long opposed such rate review and have extolled California’s present system of open competition with little Insurance Department review. Industry representatives lost no time Thursday in making it known they will fight the Connelly proposal.

However, the Consumers Union, one of the backers of the proposal, cited a recent study of the federal General Accounting Office that found that states with insurance rate review have, on the average, 13% lower rates than those, like California, that don’t.

Under the Connelly proposal, a complicated set of market conditions would trigger the rate review mechanism. But in broad terms, rates in particular categories of insurance would have to increase between 10% and 15% a year before the Insurance Department review and approval would be necessary.

The system being proposed is known as flex rating. The insurance companies can leave themselves free to act as long as they do not raise rates too much. But if there are increases above the line, then the government agencies must rule they are justified.

The bill is expected to have an uphill fight in Sacramento. Steven Miller, executive director of the Los Angeles-based Insurance Consumer Action Network, acknowledged Thursday after the press conference that without substantial public attention and pressure on the Legislature to act, the efforts of the insurance lobby to defeat it are apt to be successful.