Bid to Regulate Insurance Rates Runs Aground

Efforts to secure quick legislative passage of a compromise insurance-rate regulation bill foundered Tuesday when it became evident that there was substantial opposition to it in many quarters.

The compromise--affecting auto, homeowner, liability and property insurance--had been hammered out in closed-door negotiations between the state’s leading insurance lobbyists and consumer advocates.

But legislative leaders abandoned any thought of pushing for passage of the bill during this week’s special session after two big insurance companies, a number of consumer organizations and some minority and inner-city lawmakers objected to it, and the governor’s office expressed doubts about it.

Further action on the bill, authored by Assemblyman Lloyd G. Connelly (D-Sacramento), will be put over to the Legislature’s next regular session beginning Jan. 4.

By that time, the atmosphere surrounding insurance issues may have changed considerably. At least three separate efforts to qualify insurance ballot initiatives are expected to be under way by then, possibly putting pressure on lawmakers to act even more directly to stem high prices.

Issues Come to Fore

A recent state Supreme Court decision upholding the state’s mandatory auto insurance law is bringing auto insurance issues in particular to the fore, especially in Los Angeles and other big cities where polices cost three and four times more than in suburban and rural areas.

Although reasons for opposition to the compromise measure varied, state Senate President Pro Tem David A. Roberti (D-Los Angeles) and Sen. Alan Robbins (D-Van Nuys), chairman of the Senate Insurance Committee, both expressed the widely held view that the kind of rate regulation proposed in Connelly’s bill would do nothing to reduce extremely high auto insurance prices in the Los Angeles area.

“Insurance reform without doing something about high insurance rates is like the doughnut hole without the doughnut,” Robbins said.

The compromise that resulted in the Connelly measure came after several weeks of talks by Stanley R. Zax, president of the Assn. of California Insurance Companies; Steven Miller, president of the Insurance Consumer Action Network, and Walter Zelman, executive director of California Common Cause. It was also strongly supported by state Atty. Gen. John K. Van de Kamp.

Under its terms, the state Insurance Department would be required to approve any annual rate increases exceeding an annual statewide average of 15% for personal policies and 25% on commercial lines. This approach, regulating only those increases over a certain level, is known as a “flex-rating” system. It has been adopted in several states, but whether it has succeeded in holding down rates is a matter of dispute.

Quitting the negotiations and opposing the deal was Harry Snyder, West Coast director of the Consumer’s Union, which publishes Consumer Reports magazine. He said it would not have a sufficient effect on insurance prices, especially auto insurance premiums. Several other consumers or minority rights organizations or consumer leaders, including Ralph Nader, the Gray Panthers, Access to Justice and the Urban League, also made known their opposition.

On the insurance firm side, two of the state’s larger insurance sellers, State Farm and the Farmers group of companies, quickly made known their opposition to the flex-rating proposal. These two companies alone do about one-third of the state’s auto insurance business.

When Connelly brought up his measure in a Democratic caucus, Assemblyman Richard Polanco (D-Los Angeles) said he and other inner-city liberals have sharp objections.

‘That’s Outrageous’

“This would allow up to a 15% annual increase on all auto insurance,” Polanco complained Tuesday. “That’s outrageous. It does nothing to address the affordability issues which are critical in my (East Side) neighborhood.”

Polanco said he plans to push his own initiative, which, among other things, would limit recovery of non-economic damages in auto accidents (such as for pain and suffering) while mandating a 50% decrease in liability rates.

As all this was going on, aides to Gov. George Deukmejian said the governor’s office thought it was all being done too quickly and that Deukmejian was not sure to sign the Connelly bill if it were enacted. The measure was opposed by the governor’s insurance commissioner, Roxani Gillespie, who has consistently sought to keep her department out of the business of rate approvals.

Insurance lobbyist Clay Jackson, who was a major participant in the negotiations that led to the compromise bill, said Tuesday he felt there were a variety of reasons that the deal did not win quick legislative support, and it was hard to know which ones were decisive.

‘There Was No Consensus’

But, he said, “In the end, there was no consensus. . . . The liberals were not together. The governor was doubtful. There was not even a final text until 5 p.m. Monday. (Assembly Speaker) Willie (Brown) (D-San Francisco) was ambivalent.”

Connelly, for the most part, agreed. “The understanding came very late,” he said. “Some of the conservative members didn’t like it. Some of the progressive members were concerned. If you have a lot who are not enthused, as in this case, it’s difficult to move something quickly.

“What happens in January is hard to say,” the lawmaker concluded.