Insurance Department Is Branded ‘Toothless’

Consumers Union, the nation’s largest consumer organization, charged Tuesday that the state Department of Insurance is a “toothless” agency that despite promises to the contrary, has done little or nothing to stop “unfair, abusive or deceptive” insurance industry practices.

In a 74-page report titled, “Bark But No Bite,” the organization, which publishes Consumer Reports, criticized California insurance officials for trying to resolve complaints by “jawboning” insurers rather than seeking fines or other punitive actions.

“When you get down to where the rubber meets the road, nothing is going on,” said Harry Snyder, Consumers Union’s West Coast director. “No insurance companies are being disciplined, no insurance agents are being kicked out of the state and rates go up as the insurance industry wants.”

In a biting rejoinder, state Insurance Commissioner Roxani Gillespie derided the report as a “nit-picking, trivial little treatise” written by a Consumers Union analyst who spent only four hours studying the department.

‘Floss His Teeth’

“He was hardly here long enough to floss his teeth,” Gillespie said in a statement issued by her office.

Vowing “not be deterred or demoralized by a handful of people who test vacuum cleaners,” Gillespie added that Consumers Union is not a group of “consumers and they’re not a union--they’re New Yorkers.”

Told of Gillespie’s comments, Snyder expressed bewilderment and noted that Gov. George Deukmejian, who appointed Gillespie, grew up in New York.

“I guess we struck a chord,” Snyder said.

The report was released at a time when the Legislature, now in its four-week summer recess, appears to be on the verge of rejecting legislation to regulate insurance rates and to remove the industry’s exemption from state anti-trust laws.

Top Democrats and Republicans in the Legislature have been leaning toward approval of a substitute bill, drafted by the insurance industry, that calls for a weaker form of regulation. A final vote on the bills is expected shortly after the Legislature reconvenes in mid-August.

What happens to those bills, however, could set the stage for a much tougher insurance regulation measure that consumer groups hope to put before voters next year as a ballot initiative.

The Consumers Union report, and a follow-up letter sent to Deukmejian, acknowledges that the Department of Insurance, under Gillespie, “made some progress” in the year since the organization last studied the agency.

Gillespie was lauded for publishing price and complaint surveys of auto insurers for the first time and for beginning to discipline insurance agents who sell unneeded and deceptive policies to the elderly.

But Snyder said that while Gillespie “has done more over this year than in the past, it’s just not enough, it’s more of a smoke screen.”

Specifically, the report said, it is difficult for consumers to get copies of the price and complaint surveys and the Department of Insurance took no steps to verify the accuracy of information submitted by individual insurers.

It also noted that a toll-free consumer phone line set up by the department to take complaints against insurers “is busy almost 100% of the time.”

Similar criticism was directed at the department’s program for regulating sales of insurance to the elderly. The report charges that the department allowed at least one insurance company that was under investigation to operate under a different name.

On the issue of rate regulation, the report says that despite highly publicized rate increases of late, the department has not judged a rate to be excessive since 1977.

Bob Shireman, who helped compile the report, said that at least 22 insurance companies notified the state that they were about to increase rates by more than 25%. One insurer, he said, indicated its intention to raise rates on one line of coverage by more than 900%. Shireman said the Department declined to intervene in any of the cases.

Gillespie said, however, that directives issued by her department as the result of the rate reviews “will ultimately result in consumer access to better rates.”

One example of alleged insurance abuse cited by Consumers Union was in the sale of earthquake insurance. Insurance companies are required by state law to offer coverage. But the report claims that in some cases where policy owners agreed to accept the offer, their entire homeowner policies were canceled.

Gillespie acknowledged that this has occurred, but blamed a “loophole” in the law.

Overall, Gillespie said, many of the problems noted by Consumers Union are the result of mistakes in the past and “I am sick and tired of hearing about the department’s failures prior to my tenure.”

Gillespie was appointed to her post on July 1, 1986, on the heels of the sudden resignation of Bruce Bunner. Bunner stepped down one day after advocating at a news conference more regulation over the insurance industry.