Insurance: Open the Books

Insurance agents do not talk under oath over the telephone, and, besides, anybody can make a mistake. But as Times writer Ken Reich reported recently, one experiment at shopping by phone for automobile insurance found that the high estimate quoted by one agent was 75% above the low estimate from an agent for the very same company. Small wonder that insurance ranks right along with the plague as something that people would avoid if they could.

One basic problem is that insurance companies have successfully maintained for years that the data on which they base their rates is nobody else’s business. The inner workings of insurance thus are a mystery not only to most customers but, with rare exceptions, to government agencies that supposedly regulate insurance.

A measure sponsored by Assemblyman Lloyd G. Connelly (D-Sacramento) would take some of the mystery out of insurance rates. The Assembly Ways and Means Committee, which voted against sending Connelly’s AB 2067 to the floor the first time it considered the legislation, is scheduled to take a second look today. The committee should reverse its earlier action and approve the legislation.

One important element of the Connelly bill would require insurance companies to share the data on which they had based a decision to change rates if they wanted to raise or reduce rates on personal insurance, a category that includes automobiles, by more than 10%. Any request for a change would be turned down if an insurance company refused to open its books to justify a change in premiums. The 10% range up and down would also apply to general liability insurance for small businesses. For other types of insurance, companies could raise or lower rates by 25% without opening their books for inspection.

That seems to us a most reasonable request--just about the least that you could ask from a regulated industry. It is not as though insurance companies would be disclosing facts not known to their competitors. Insurance companies are exempt from the nation’s antitrust laws so that they can swap information about profits and losses in various kinds of insurance.

Ways and Means is the second stop for the Connelly bill. It was approved by the Assembly’s Finance and Insurance Committee some time ago. How the insurance lobby in Sacramento, operating in the same mysterious way that it determines rates, managed to let the Connelly bill slip through even one committee is another of the many insurance mysteries, but it apparently does not intend to let it happen again.

After a meeting between insurance executives and Assembly Speaker Willie Brown (D-San Francisco), a new and weaker bill appeared, sponsored by Sen. Barry Keene (D-Benicia). The Speaker said that he would support the Keene bill rather than see the Connelly bill, of which Brown is a co-author, needlessly led to slaughter on the Assembly floor.

Keene’s bill would double the margins within which companies could raise rates with no questions asked, from 10% to 20%. There is no provision, as there is in the Connelly bill, for an insurance consumer advocate in the attorney general’s office. One clause in the Keene measure could mean that automobile insurance would be exempt from the scrutiny that would apply to other kinds of insurance.

According to the insurance industry, an advocate who would make an independent inspection of a company’s books would be too expensive. In New Jersey an advocate eats through an annual budget of $35 million, according to the industry. In parenthetical fine print the industry notes that the New Jersey public advocate office handles cases in “other industries” that turn out to be, among others, public utilities.

Connelly’s bill would finance the advocate’s work with an annual 10-cent surcharge on each insurance policy, for a total of $4 million a year.

That the insurance lobby accepts at least the principle of stricter regulation is a victory of sorts. But it will not be complete until the Connelly bill is approved. That should occur soon, and in full view of the insurance-buying public.