State Will Review Car Insurance Rate Increases Over 10%

California’s auto insurers will be be forced to justify any 1988 rate increases totaling 10% or more under a special order issued Monday by Insurance Commissioner Roxani M. Gillespie.

The order comes in the wake of double-digit rate increases posted by a number of California insurers, including a whopping 23% hike by Fireman’s Fund and a 15.6% increase by the California State Automobile Assn. Individual premiums in some cases have climbed over 30%.

Gillespie said she acted now because she feared that insurers might post steep rate hikes in anticipation of the passage of one or more of the voter initiatives dealing with insurance on the November ballot. As many as five initiatives may qualify for the ballot.

“Our action prevents arbitrary rate hikes in anticipation of what may happen later this year,” Gillespie said. “No justifiable numbers, no rate hikes. It’s that simple.”

But some observers questioned whether Gillespie has sweeping authority to force rate reductions. Judith Bell, director of special projects for the West Coast regional office of Consumers Union, said Gillespie “is putting the companies on notice that she is going to review their rates and, at best, may engage in some jawboning.”

But Bell added that the commissioner’s actual power to cut rates is quite limited under state law.

“The commissioner has not found a rate to be excessive for over 10 years,” Bell noted.

“This is more rhetoric than it is consumer protection,” charged Steven Miller, executive director of Insurance Consumer Action Network, which is sponsoring one of the ballot initiatives.

Not Required to File

Miller noted that companies are not even required to file their rates with the commission. Moreover, he said, a rate cannot be deemed excessive unless there is no competition in the market.

Under Gillespie’s order, insurers can continue to implement rate increases at will. However, they will also have to immediately submit actuarial and other data supporting the rate hike to the Department of Insurance. The department will then have 60 days to review the rate increase.

Rates found “excessive” or “unfairly discriminatory” would be disallowed, Gillespie said. The order applies to rate revisions during 1988 and is retroactive to Jan. 1.

Insurers contacted Monday seemed unconcerned about Gillespie’s order.

“We’re confident our documentation will be found adequate,” said Rick Dinon, a vice president of 20th Century Insurance Co., which boosted auto rates an average of 14.5% statewide on May 1.

“Yes, we have increased our rates, but no, it is not in anticipation of the passage of any of the initiatives,” said Ed Laugle, a senior vice president of Fireman’s Fund. He attributed the 23% jump in auto rates to skyrocketing legal and medical expenses.

Tom Rohner, a spokesman for the California State Automobile Assn. in San Francisco, also denied that its recent 15.6% rate hike reflected fear of the voter initiatives.

“The initiatives call for a rollback in rates, so if you add it on now, it wouldn’t mean a thing,” he said.

But James Mueller, chief of the Insurance Department’s consumer services, insisted in an interview that “the word on the street” is that fearful companies have or are planning to boost their rates.

However, neither Mueller nor Khalid Alfaris, chief of the department’s statistical services, could point to examples of double-digit rate hikes that resulted from such industry worries. They also could not provide a list of double-digit rate hikes so far this year--which is proof, advocates of insurance law reform said, that the current regulatory system is inadequate.

A report by the state Senate’s Insurance Committee in January found that California auto insurance rates had climbed 40.1% during the previous 2 1/2 years, fueling calls for reform.

The voter initiatives that have qualified for November’s ballot offer markedly different remedies. They include an industry-supported, no-fault insurance plan, under which accident victims would be reimbursed by their own companies, and another that would allow banks into the insurance business and give the department much more authority to cut rates.