Commissioner Terms Car Insurer Profits Low : State Official Says That at Least Half of Sellers Would Escape Rollbacks Under Props. 100, 103

State Insurance Commissioner Roxani Gillespie suggested strongly here Friday that at least half of California’s top auto insurance sellers are making such low profits that her department would not require them to comply with rate rollback provisions in Propositions 100 and 103.

Gillespie, giving the most solid indication yet that the Deukmejian Administration sides with the insurance industry in the initiative fight, told a legislative hearing that two insurer-sponsored propositions, 101 and 104, contain, by contrast, sound rollbacks, because, at the same time they reduce pay-outs to accident victims.

Analysis Challenged

Spokesmen for Proposition 100, backed by the California Trial Lawyers Assn. and Atty. Gen. John K. Van de Kamp, and Proposition 103, supported by consumer advocate Ralph Nader, took issue with Gillespie, terming her analysis wrong and charging she is controlled by the insurers.

The spokesmen said that both Propositions 100 and 103 mandate extensive new disclosure by the insurance companies of previously secret financial information, which would shed new light on the companies’ profitability and their ability to absorb rollbacks.

Gillespie said in an interview during the hearing that if 100 and/or 103 do win voter approval on Nov. 8, she will have to hold hearings on whether she will allow their rollbacks--exceeding 20% and perhaps 30% for most or all policyholders, respectively--to go into effect.

She told the hearing, chaired by Senate Insurance Committee Chairman Alan Robbins (D-Van Nuys), that no conclusions have been reached.

But her testimony about the companies’ relative lack of profitability strongly suggested that she believes many companies would qualify for exemptions from rate rollback provision in Propositions 100 and 103.

Her views on the subject are important because both measures would empower the state insurance commissioner to decide, if companies appeal the rollbacks, which ones would qualify for exemptions.

Under Proposition 103, the post of state insurance commissioner, now an appointive job, would become elective. But this would not occur until the 1990 election. Until then, either Gillespie, or another Deukmejian appointee if she were to leave the job, will be charged with implementing the rate rollbacks.

Gillespie said the data showed that six of the 10 biggest auto insurance sellers in California have made a profit over the last five years that is below that of comparable businesses, such as banks and other kinds of insurers.

She noted that Proposition 100 specifically exempts from its rollbacks companies that can establish their earnings would be inadequate.

By that standard, she said, six of the top 10 sellers--State Farm, the California State Auto Assn., Farmers, the Automobile Club of Southern California, Mid-Century and Mercury--might legally have to be exempted from rollbacks. And the other four--Allstate, 20th Century, USAA and State Farm Fire and Casualty--might be exempt from part of them, if their profits, as a result of the rollbacks, fall below those of comparable companies.

The data Gillespie presented Friday on how insurance company profits would be affected by Proposition 103 represents a worst-case scenario, according to Norris Clark, a staff aide who prepared the figures used by Gillespie.

Five Would Qualify

Gillespie said that, under Proposition 103, five of the top 10 insurance sellers--the Cal State Auto Assn., Farmers, the Automobile Club of Southern California, 20th Century and Mercury--could qualify for rollback exemptions. Proposition 103 would grant such exemptions to any company that could show it is “substantially threatened with insolvency.”

According to this analysis, the other five top 10 companies--State Farm, Allstate, Mid-Century, USAA and State Farm Fire and Casualty--would not be eligible to escape the Proposition 103 rollbacks.

Hundreds of other companies, not specifically mentioned in Gillespie’s report, do auto insurance business in California. She said that, according to the data prepared by Clark, 30 of these would become insolvent after Proposition 103 had been in effect for two years unless they obtained exemptions from rollbacks.

Gillespie’s whole tone was highly critical of Propositions 100 and 103. By contrast, what little she had to say about the insurer-backed propositions 101 and 104 was favorable. She did not talk about Proposition 106, another insurer-backed measure, which would slash lawyers’ contingency fees.

For instance, she said that if 103 passes, “The State of California might have to consider entering the insurance business itself as there may no longer be sufficient capital available from the private sector to meet the public needs.”

Brings Caustic Reaction

Her remarks drew a caustic reaction from both the Proposition 100 and 103 campaigns.

Steven Miller, chairman of the 100 campaign, declared:

“It is indicative of the drastic need for reform that the only person California’s insurance consumers can look to for protection against the abuses of an out-of-control industry has abandoned those responsibilities in exchange for a leading role fronting for the insurance industry’s anti-reform campaign.”

Miller accused Gillespie of “imparting false information” and expressed confidence that when “insurers open their books and provide the public with information (on) the precise profit and loss figures within the industry . . . I do not know how she can draw the kind of conclusions she’s reached here today.”

Harvey Rosenfield, head of the Proposition 103 campaign, said he views Gillespie’s statements as “a tip-off” to efforts he charged the Deukmejian Administration will make after the election to sabotage the voters’ will.

‘Setting Up Scenario’

“She’s setting up the whole scenario for saying the insurers are insolvent and letting them off the hook,” he said. “It is outrageous.”

Rosenfield accused the insurance industry of “constantly manipulating” its income figures through accounting chicanery in an attempt to “claim they’re in trouble when they’re always making lots of money.”

As the contentious hearing ended, Robbins remarked, “I’d be very surprised if anyone receives lower auto insurance premiums in 1989.”

EFFECTS OF THE INSURANCE PROPOSITIONS State Insurance Commissioner Roxani Gillespie testified Friday about of the November ballot initiatives, offering this view--strongly contested by proponents of Propositions 100 and 103--of how they would affect auto insurers and how much it would cost the state to administer the programs. PROPOSITION 100: GOOD DRIVER INSURANCE EFFECT ON INDUSTRY Initiative provides for no economies in system, may cause a reduction in competition. Insurers would become a “privileged industry that is guaranteed a profit” under provisions that allow insurers to petition for exemption from a required 20% rollback in premiums. PROJECTED STATE COST Would force hiring of 150 new employees, including rate analysts, technical positions, actuaries, data processors and clerical help. Estimated cost of salaries, benefits, expenses, equipment--$10 million. PROPOSITION 101: ROLLBACK AND CLAIMS LIMIT EFFECT ON INDUSTRY Proposed economies in the system of paying claims (reduced payments for pain and suffering, among others) poses no solvency problems for insurers. PROJECTED STATE COST Would force hiring of 30 new employees. Estimated cost of salaries, benefits, expenses, equipment--$2 million. PROPOSITION 103: INSURANCE RATE ROLLBACK EFFECT ON INDUSTRY Major solvency problems could result; the initiative provides for no economies to the insurance system. Without rate increases, five insurers would become insolvent in the first year of operation; in the second year, another 30 insurers would become insolvent and an additional 40 would curtail their business as a result of reduced profits. “The cost of insurer insolvency (would be) paid for by policyholders” in surcharges to premiums. The affected insurers wrote 20% of California’s property-casualty insurance in 1987. PROJECTED STATE COST Would force hiring of 300-350 new employees. Estimated cost of salaries, benefits, expenses, equipment, including new computers--$18 million. PROPOSITION 104: NO-FAULT INSURANCE EFFECT ON INDUSTRY Proposed lower claim payouts and reduced lawsuit costs pose no solvency problems for insurers. PROJECTED STATE COST Would force hiring of 30 new employees. Estimated cost of salaries, benefits, expenses, equipment--$2.5 million. HOW PROFITABLE ARE CALIFORNIA’S AUTO INSURERS? State Insurance Commissioner Roxani Gillespie testified Friday about the effects of the November ballot initiatives. These are state Department of Insurance figures about the profitablity of auto premium business among the largest insurers between 1982 and 1987. It does not include other insurance business or investment income. In Thousands of Dollars

% of Cal. Pre-Tax Market Business Earned Operating Gain Company Share to U.S. Premiums (or Loss) State Farm Mutual 15.2% 11.8% $6,454,018 $182,918 Cal State Auto Club 9.7% 86.3% $3,655,902 ($23,350) Farmers 9.1% 65.7% $4,356,399 ($315,735) Allstate 8.9% 8.9% $3,838,215 $23,512 Auto Club 8.1% 97.4% $3,800,566 ($33,124) 20th Century 4.8% 93.3% $1,544,941 $44,364 Mid-Century 3.3% 41.8% $1,299,922 ($38,395) Mercury 2.6% 87.6% $767,900 $13,544 USAA 2.4% 12.5% $962,091 $102,047

% of Earned Company Premium State Farm Mutual 2.8 Cal State Auto Club (0.6) Farmers (7.2) Allstate (0.6) Auto Club (0.9) 20th Century 2.9 Mid-Century (3.0) Mercury 1.8 USAA 10.6