Robbins Bill Takes Aim at Cancellations by Insurers

Attempting to head off insurance industry steps to counter Proposition 103, Democrats in the state Senate introduced legislation Monday that would penalize companies if they make wholesale cancellations of insurance policies.

The legislation, drafted by Sen. Alan Robbins (D-Van Nuys) and co-authored by 19 other Democratic lawmakers, would levy a penalty against insurance companies of 50% of the total value of their premiums if they fail to renew more than 10% of their policies.

Insurers, who have been saying that they will lose money because of the mandatory 20% rate rollbacks under Proposition 103, would also be subject to the penalty if the state insurance commissioner finds that “a substantial number” of policyholders are being denied renewal for reasons unrelated to underwriting risk. Cancellations would still be allowed if related to conduct of the policyholder, such as cases in which a person is convicted of drunk driving.

Since passage of Proposition 103, a number of insurance companies have threatened to leave the state or have said they will take such defensive steps as refusing to sell new policies or shunting new customers to affiliates that charge higher rates. Other companies are waiting to see whether the initiative survives an insurance industry legal challenge in the state Supreme Court.

Carries More Weight

Robbins’ bill, one of dozens of Proposition 103-related bills that are expected to be introduced, carries added weight because he is chairman of the Senate Insurance, Claims and Corporations Committee. Robbins attached an “urgency” clause to the bill so that it can be taken up in January.

A spokesman for the insurance industry said that even if Robbins’ bill passes, it will “not be of any help to consumers” because insurers would be willing to pay a penalty to leave California--and others would not take their place because of the money-losing prospect of writing insurance under the new Proposition 103 rules.

Edward Levy, general manager of the Assn. of California Insurance Companies, said he expects the California Supreme Court to find the rate rollback provision and other features of Proposition 103 unconstitutional.

If the court does not reject Proposition 103, Levy said, a measure such as Robbins’ is not likely to keep insurance companies in California.

“In other states, penalties have not stopped companies from leaving a market, but they have discouraged new companies from coming in and picking up the business that’s left behind,” he said.

$4-Billion Loss Estimated

California insurers estimate that they will lose $4 billion if required to make the rate rollbacks called for by Proposition 103.

Two other insurance bills linked to Proposition 103 were introduced by Senate President Pro Tem David A. Roberti (D-Los Angeles).

One of the Roberti bills would create a consumer advocate’s office under the control of the state attorney general’s office, a provision of Proposition 100, which was defeated by voters. The other Roberti bill would make it illegal for a company that writes motor vehicle insurance to change its underwriting standards, to cease writing insurance or to refer applicants to affiliated companies if higher rates would result. The second bill would be retroactive to Nov. 8, the date of the election.

In the Assembly, legislation is being put together that would create a no-fault insurance system in California modeled after one being used in New York.

In introducing his bill, Robbins sharply criticized insurance companies for using a variety of tactics to drive away consumers, such as refusing to renew policies or trying to move policyholders from one company to another in order to raise premiums.

He said the actions of some insurers are particularly “reprehensible” in light of the California Supreme Court’s decision to delay implementation of Proposition 103.

Meanwhile, in a letter to the state Supreme Court, the Consumers Union joined Atty. Gen. John K. Van de Kamp and the sponsors of Proposition 103 in urging that the high court lift either all or at least a large part of the stay it has imposed on the measure.

Arguing that many of the provisions of Proposition 103 have not been specifically challenged by the insurance industry, the consumers’ group also noted that many of these provisions are already in force in other states and have not been challenged there.

The letter said another provision of Proposition 103, the repeal of the industry’s antitrust exemptions, has been advocated by advisers to the Ford, Carter and Reagan administrations.

“Consumers Union urges this court to lift the stay of Proposition 103 and most particularly those provisions that are not challenged and that do not threaten irreparable injury,” the letter concluded. “These provisions have been tested in other jurisdictions and can work for consumers in California.”

Times staff writer Kenneth Reich contributed to this story.