Prospects Fade for Major Changes in Insurance Laws

Prospects for major changes in California’s insurance laws faded Wednesday when the Assembly Ways and Means Committee rejected one bill and radically altered another.

Consumer groups were pushing both bills in a last-ditch effort to “reform” the state’s insurance system before the Legislature adjourns for the year.

A third bill, opposed by the consumer groups but the subject of negotiations that appeared to be moving forward, was gutted by the committee and then amended to include a new “no-fault” approach to auto insurance that was not even being considered when the day began.

The two bills that are still alive were so drastically amended that they are expected to be returned to the Assembly Finance and Insurance Committee, which earlier had approved them in different versions. That means there may not be enough time to hold further hearings and pass the measures before the Legislature adjourns Sept. 11.

Ballot Initiative

The actions taken Wednesday are expected to fuel enthusiasm for a ballot initiative that would increase state regulation of the industry and limit rate hikes.

“It’s clear to us that nothing is going to happen this year,” said Steve Barrow, a lobbyist for California Common Cause. “It is more likely, because of these shenanigans, that people will not only be encouraged to go along with an initiative but kind of forced to think toward that end.”

Assemblyman Lloyd Connelly (D-Sacramento), the author of one of the consumer-backed bills, described the series of votes and legislative maneuvers as a “giant smoke screen” erected by the industry to stop reform.

Connelly’s bill, which fell four votes short of the 12 needed for passage, would have allowed the state Insurance Department to review and reject insurance rate increases greater than 10% in one year on any kind of policies sold to individuals and small businesses and 25% on any sold to large commercial operations.

The bill would also have allowed public involvement similar to that permitted when the Public Utilities Commission considers increases in utility rates.

The other bill supported by the consumer groups would have abolished the insurance industry’s limited exemption from state antitrust laws, a move consumer advocates believe would introduce greater competition into the setting of rates on all kinds of insurance sold in California.

Radical Amendments

But that bill’s author, Assemblywoman Maxine Waters (D-Los Angeles), agreed to accept radical amendments after concluding that her measure would have been rejected without them.

The amendments, supported by the industry, would establish no-fault auto insurance in California, a concept under which drivers involved in accidents would be compensated by their own insurance company, no matter who caused the accident. The amendments also included a system for rate review similar to that spelled out in Connelly’s bill.

The same amendments were added to the third bill by Sen. Barry Keene (D-Benicia). The industry supports the third bill as a more moderate form of rate review. Before it was amended, the Keene bill would have allowed the state insurance commissioner to review rate hikes but allowed much less public involvement in the process than did the Connelly bill.

Wednesday’s maneuvers were engineered by three Democrats who sided with Republicans on the committee to form a majority in support of the insurance industry’s position. The Assembly Democrats were Charles M. Calderon of Alhambra, Gerald Eaves of Rialto and Steve Peace of Chula Vista.

Peace insisted that he and the others believe that their no-fault auto insurance proposal is a legitimate alternative for reform that could reduce rates and would probably lower costs overall because it would decrease litigation.

“Real insurance reform is a lot harder to do than the kind of superficial political stuff that has been at the forefront,” Peace said. “If you really want to do something that changes things, you start really affecting people, and that’s where things get tough.”