Insurance Lobby Gains Brown’s OK for Weaker Form of ‘Flex-Rating’ Bill

A bill sought by leading consumer organizations that would have given the state Insurance Department the power to say yes or no to any sizable fluctuation in insurance rates, and put a consumer’s advocate in the Insurance Department, was killed Tuesday in the Assembly Ways and Means Committee.

The bill, authored by Assemblyman Lloyd Connelly (D-Sacramento) and supported by the Consumers Union, Common Cause, the Insurance Consumer Action Network and Access to Justice, fell short when two assemblymen, Charles M. Calderon (D-Alhambra) and Gerald R. Eaves (D-Rialto), declined to vote on it, and another, Steve Peace (D-Chula Vista), changed his vote from aye to nay.

Afterward, consumer advocates and insurance industry lobbyists agreed that the insurance lobby, after intensive behind-the-scenes negotiations with Assembly Speaker Willie Brown (D-San Francisco) and other legislative leaders, had managed to get the leaders to agree to substitute a weaker bill acceptable to the industry.

Both bills called for introduction of a “flex-rating” system, under which increases or decreases in rates greater than a certain percentage would trigger automatic review by regulatory authorities, who would be empowered to reject them if they find they are a violation of prescribed standards. The bills deal with all types of insurance.

After the negotiations, Brown--who had supported the more stringent Connelly measure in the Assembly Finance and Insurance Committee last month, even describing it as his own--withdrew his support from it in the Ways and Means committee. This, it was agreed on both sides Tuesday, doomed the bill.

Offered in its place is a bill authored by Sen. Barry Keene (D-Benicia) that would provide for a weaker flex-rating system. That bill, whose original language dealt with industrial loan companies, an entirely different subject, cleared the Senate, but was then stripped of its earlier provisions and amended to put in the new, weaker flex-rating proposals. It is now pending in the Finance and Insurance committee and is expected to have the support of Brown.

While the Connelly bill would have mandated Insurance Department action on any rate increase or decrease in personal lines exceeding 10%, the Keene bill would require a 30% increase over two years or 20% in any one year before the department would be involved.

Also missing from the Keene measure is the provision for a consumer’s advocate in Insurance Department proceedings.

Steven Miller, head of the Insurance Consumer Action Network and a prime mover behind the Connelly bill, charged after the Ways and Means vote Tuesday that the Keene measure “is nothing else but a device to kill the Connelly bill.”

“They say this is its substitute, but I don’t believe it will ever come out of the Legislature,” he said.

And addressing Brown’s shift of position on the Connelly bill, Miller added angrily: “This says he is more interested in satisfying the special interests than addressing the public interest.”

A spokeswoman for Brown responded that “of course, Willie Brown does not sell out to special interests.” But she said she could not reach him for immediate comment on his actions regarding the Connelly bill.

George Tye, spokesman for the Assn. of California Insurance Companies, chief lobbyist for the industry, characterized the Keene measure as an acceptance by the industry of a change in the California insurance laws--the flex-rating system--that it had resisted in the past.

“It’s an outcome of a continuing negotiation with the leadership of the Legislature,” he said.

“We’re hopeful this thing will allay some of the concerns of the public, and the Legislature can redirect its concern to needed changes in the civil justice system. The Keene bill is very significant insurance reform.”

Tye’s remarks demonstrated the insurance lobby’s preoccupation with shifting the legislative agenda away from acting against the interests of the insurance industry toward doing something against the interests of lawyers who also benefit from the insurance business through extensive litigation and negotiation. The insurers and the lawyers have often been at odds in recent years, each trying to prevent damage to their own interests from legislative attempts to do something about high insurance prices.

Despite Tye’s assertion that the Keene bill would be meaningful reform, two legislators present at Ways and Means hearing Tuesday characterized the killing of the Connelly bill as a clear victory for the insurance lobby.

“If the insurance industry is prepared to kill every kind of reform in this state in the Legislature, fine,” said Assemblyman Phillip Isenberg (D-Sacramento). “Eventually, it will come around and will chop your heads off. It is crazy . . . to constantly oppose every kind of reform.”