War of Words on Prop. 103 Moves to Congressional Panel Hearing

If the California Supreme Court upholds Proposition 103, mandating a 20% cut in insurance rates, the industry may carry the fight to federal court, arguing that the ballot initiative is unconstitutional, a top executive said Tuesday.

Insurance companies would argue that a rollback in rates would force them to exhaust their surplus funds to stay in business, and therefore would be an illegal seizure of assets, said William B. Snyder, chairman and chief executive of the Geico insurance companies.

“The industry will explore all options” to protect itself, Snyder said during an interview after he testified before a U.S. House subcommittee investigating insurance issues.

Consumer ‘Posses’

Earlier, Harvey Rosenfield, who led the Proposition 103 campaign, told the subcommittee that “posses” of angry consumers will be formed in every state to “bring the insurance industry to justice” by pushing for lower rates.

Consumers and business officials from 37 states have contacted the California campaign offices of Voter Revolt since the initiative passed on Nov. 8, he said.

The tough rhetoric and stinging attacks on the industry by Rosenfield and consumer activist Ralph Nader at Tuesday’s hearing were matched by equally intense industry rebuttals.

Snyder denounced Rosenfield and Nader as demagogues and said insurance rates are high in California because “fraud and chicanery are rampant.”

“It appears that a large number of crooked lawyers, medical doctors and chiropractors are available to anyone who wants to subvert the auto reparations system,” Snyder said.

Geico would lose $30 million in 18 months from its California auto insurance business under Proposition 103 and will quit the state if the initiative is upheld, Snyder said. “I am not willing to pay that price ($30 million) to stay in California,” he said during an interview after the hearing of the consumer protection subcommittee of the House Energy and Commerce Committee.

His company has 140,000 policies, covering about 300,000 cars, 1.9% of the cars in California.

John B. Crosby, who led an insurance industry group during the campaign, said, “There is no mandate in the vote for Proposition 103.” He noted that the measure was narrowly approved by a statewide vote of 4.6 million to 4.4 million and had been rejected in 50 of 58 counties.

Unimpressed with Crosby’s electoral analysis, Rep. James Florio (D-N.J.), the subcommittee chairman, said, “One vote is a mandate.”

The victory reflected the public’s impatience with legislators, according to Rep. Jim Bates (D-San Diego), who said he had voted for Proposition 103 “with reservations.”

Congress “failed to deal with the issue,” he said. “The state Legislature failed to deal with it. You have been a more effective legislator (by) not being elected to office,” he told Rosenfield.

Proposition 103 would force an immediate reduction in the cost of insurance for automobiles, homes, businesses, schools, hospitals and city governments, to a level 20% below the rates of November, 1987. The lower charges would be in effect for one year, and insurance companies would be required to open their books to state authorities to obtain rate increases.

Antitrust Exemption

An elected commissioner would regulate the insurance industry in California. And the state’s antitrust exemption would be repealed, allowing group purchases and rebates, according to Nader, whose campaigning played a key role in passage of the initiative.

He called for congressional action to provide for federal oversight of the industry, which has historically been regulated by the states. Nader also advocated repeal of the federal antitrust exemption, which he said enables industry services “to publish ‘advisory’ rates and allows insurers to follow those rates, often resulting in artificially high rates for consumers.”

The insurance industry says Proposition 103 will bankrupt as many as 60 companies whose primary business is in California. The initiative, if upheld by the courts, “will increase rates for two-thirds of California by an average of 22%, just so drivers in Los Angeles and San Francisco can pay less,” Crosby said.

Concern in Congress

The industry is concerned that efforts to roll back rates may be expanded to other “high-loss states,” such as New York and Colorado, according to Dave Snyder, a spokesman for the American Insurance Assn. These states share with California high costs for repairs and medical care, and numerous lawsuits.

Members of Congress are concerned with insurance costs but are far from any legislative solution, or even a consensus for action.

“The increases in rates must stop,” said Florio, whose home state of New Jersey has the highest car insurance costs in the country. “Auto rates must go down, and not only in California.”

However, Florio seemed equally skeptical of the sweeping charges and counterclaims swirling around California’s Proposition 103. “There is an awful lot of self-righteousness on both sides,” he said.