Insurance Rate Rollbacks Held Likely to Stick

Atty. Gen. John K. Van de Kamp expressed confidence Monday that state Insurance Commissioner Roxani Gillespie ultimately will allow many of the rate rollbacks approved by voters on proposed insurance initiatives, despite what he described as her “predilections” toward the insurance industry.

Van de Kamp, appearing at a news conference where many consumer organizations were on hand to support Proposition 100, said that even though Gillespie had suggested that she might exempt many companies from the rollbacks, her past actions with respect to assigned-risk auto insurance rates indicated that she will have second thoughts later.

Van de Kamp noted that the commissioner, after lengthy hearings, had given the companies only about one-third of the 50% increases they had requested for their assigned-risk policies last year. Van de Kamp said that hearings into the companies’ financial situation after the Nov. 8 election may demonstrate that most companies can afford the rollbacks.

Proposition 100, the initiative backed by Van de Kamp, calls for rollbacks of 20% from levels prevailing Jan. 1, 1988, for “good drivers” with no more than one minor traffic violation in the last three years. Other initiatives also call for varying rollbacks.

Gillespie, in testimony Sept. 16 to a legislative hearing, said her research showed that six of the 10 biggest auto insurance sellers in California might qualify for exemptions from the rollbacks called for under Proposition 100. The measure would allow her to exempt companies that make a profit less than that of comparable businesses.

However, responding to Van de Kamp’s statements Monday, the commissioner’s chief counsel, Fermin Ramos, said:

“There is no preconception on the part of this department at all as to whether we grant exemptions or otherwise. All of the parties will be able to come forth with evidence at hearings, and the commissioner will base her position on the evidence.”

The news conference attended by Van de Kamp was intended to show the diversity of Proposition 100’s support, with representatives of such organizations as Common Cause, Consumers Union, Mothers Against Drunk Driving, the California Police Chiefs Assn. and the County Supervisors Assn. of California present.

Missing from the news conference were representatives of the trial lawyers, the bankers and the chiropractors who together have contributed more than 85% of the initiative’s financing.

In another development in the initiative battle Monday, the Mercury group of companies, eighth-biggest seller of auto insurance in the state, said it has sent a written directive to its 500 agents telling them not to enter into any agreements to sell new auto, homeowner or commercial policies with effective dates after Election Day.

Bruce Norman, vice president of marketing for Mercury, explained that the company wants to evaluate the results of the election, particularly the outcome on Proposition 103, the measure supported by consumer advocate Ralph Nader, before it commits itself to post-election sales.

In the directive to its agents, Mercury declared that both Proposition 100 and Proposition 103 are “adverse to insurers,” but it reserved most of its fire for 103, which contains broader rollbacks than Proposition 100.

If Proposition 103 passes, the directive told the agents: “It is possible that our entire net worth could be dissipated in 14 months. Continuing to do business after the passage of Proposition 103 could result in insolvency for us and a loss of a market for you.

“Until we know the outcome of the election, and decide our course of action, we must ask you not to bind (enter into any commitments to sell) any new business with an effective date of Nov. 8, 1988, or later. We regret to take this action, but see it as the only way to continue as a viable insurer and to continue our relationship with you.”

Norman said he understood that State Farm, the state’s largest insurance seller, had taken similar action. But a State Farm official denied it. Pete Ingham, State Farm vice president and general counsel, said, “We have talked about various options to our agents, but we’ve made no decisions and sent no directives.”