Factions Clash Over Insurance Profit Levels

Coordinators of Proposition 103, the insurance initiative supported by consumer advocate Ralph Nader, clashed Wednesday with insurance industry spokesmen over the question of how profitable the industry is in California and whether it can afford a year of broad price rollbacks called for in the initiative.

Not surprisingly, the Nader coordinators said the insurance business is “very lucrative” and the insurers can easily afford the proposed 20% rollbacks from levels prevailing a year before the November election. The rate reductions would apply to auto and other forms of property and casualty insurance.

The insurers insisted that they are in no position to absorb any rate cut, especially since neither the benefits they provide, nor lawsuits, would be reduced at the same time.

The Proposition 103 campaign released a report at news conferences in Sacramento and Santa Monica contending that between 1982 and 1986 California insurance companies paid out an average of only 56 cents in claims for every dollar received from policyholders.

This proves that California insurers are “reaping bonanza profits,” said Jay Angoff, counsel to the National Insurance Consumer Organization, who prepared the report.

But insurance industry spokesman David Fountain was quick to respond that the study did not include either company overhead or losses the companies estimate will have to be paid in future years on accidents and thefts taking place each year.

When these figures are calculated, Fountain declared, the industry is paying out $1.12 for every dollar it takes in.

Investments of money being held by the companies is an important other source of insurance industry income, but neither side sought to estimate this.

Angoff and Proposition 103 coordinator Harvey Rosenfield said that even though overhead and future pay-outs were not included in their report, it still showed a growing gap between insurer income and expenses on an annual basis.

Rate Regulation Plan

The gaps demonstrate that the industry can afford to reduce its income for a year, while a new rate regulation plan is put into place in California, as also called for in the initiative, Rosenfield said.

Meanwhile, in another development, a Sacramento television station, KXTV, released a study it said it had commissioned by four Midwestern insurance actuary experts indicating that a Sacramento couple with two cars and a good driving record would get a 30% to 37% decrease in their auto insurance premiums if Proposition 100, supported by the California Trial Lawyers Assn., passes.

The actuaries found that lesser reductions would result from the other initiatives, a 25% decrease if Proposition 103 passes, a 21% decrease if Proposition 101, supported by Coastal Insurance Co., passes and a 6% decrease if the insurance industry’s no-fault initiative, Proposition 104, passes. The station would not identify the actuaries who participated.