Slow Pace Expected on State Car Insurance Reform Bills

Although dozens of insurance “reform” bills are being drafted in response to voter passage of Proposition 103, the Legislature is unlikely to rush into any major modifications of the auto insurance system created by the Nov. 8 ballot initiative, key lawmakers and legislative sources say.

Unless the state Supreme Court overturns significant parts of the new law, the consensus is that the Legislature, after it convenes Jan. 3, will concentrate its initial efforts on ensuring that the initiative is fully implemented. This will include legislation to punish insurers that arbitrarily cancel policies or boost their premiums while the state court is considering challenges to the law’s constitutionality.

Several influential lawmakers also indicated that they intend to go forward with bills aimed at cutting insurance costs, including possible curbs on the ability of accident victims to file lawsuits. Final action on these measures is unlikely before the court rules, however, and may be delayed until after November, 1989, when the new law is fully in effect and the system has had a chance to work.

“To rush in during January and pursue legislation to reduce the cost of the insurance system would be clearly perceived as trying to bail out the insurance companies,” said Sen. Alan Robbins (D-Van Nuys), who chairs the Senate’s Insurance, Claims and Corporations Committee.

“We have to deal now with the immediate issue of making sure the companies are not trying to evade 103. Then a few miles down the road we need to deal with long-term reform,” he said.

Robbins, who accused insurers of adopting a disastrous confrontational policy after passage of Proposition 103, added: “Whoever did their (public relations) must have also done it for Jack the Ripper and Charles Manson. If they wanted to make themselves look bad, they could not have developed a more effective scenario.”

Take Case to the Public

Sources close to the insurance industry said its top officials decided after the election to try to shed the industry’s impersonal, even arrogant, image and take their case to the public, not just to regulators. Insurers acknowledge, however, that they have little bargaining power in the Legislature to push for new reforms, at least for now.

“Some legislators are obviously viewing 103’s narrow victory as an equivalent of a landslide, and that makes it more difficult to discuss changes,” said Edward Levy, general manager of the Assn. of California Insurance Companies. “Even though it had a relatively slim margin of victory, legislators are to an extent bound to reflect that sentiment in their future actions.”

Other legislative sources said that voter rejection of several competing insurer-sponsored initiatives on the November ballot could make some lawmakers even more reluctant to support a major insurance overhaul.

“If the past is any predictor of the future, there will be little bits and pieces (of reform) here and there, but not much else,” said one Senate source well versed in the insurance battle.

The most far-reaching of the reform proposals under consideration is a plan to institute a New York-style no-fault auto insurance system. Similar legislative proposals garnered little support in recent years, and voters in November resoundingly rejected Proposition 104, the insurance industry’s no-fault initiative.

Even Assembly Speaker Willie Brown (D-San Francisco), a traditional foe of no-fault, has said, however, that if insurance rates are strictly regulated under Proposition 103, there will be a need for legislation to reduce the claims costs that are driving premiums up.

The latest no-fault plan is supported by Consumers Union and authored by Assemblyman Patrick Johnston (D-Stockton), who chairs the Assembly Finance and Insurance Committee. It has drawn strong opposition from trial lawyers and the Ralph Nader-backed group that sponsored Proposition 103.

Historically, the Legislature has not acted on major insurance reform because of the political stalemate between insurers and trial lawyers, two of the Legislature’s most reliable campaign contributor groups.

The insurers contend that the only way to reduce premiums is to cut costs. They say that means restricting lawsuits. Trial lawyers, who maintain that insurers already make too much money, oppose any plan to limit the rights of victims to sue for damages, thereby protecting their own fees as well.

The November election added to the mix a new political power group, the Nader-backed consumer organization, whose leaders have nothing to lose by a continuing standoff between the insurers and trial lawyers.

‘People Wrote Own Law’

“The Legislature had its chance to reform and it failed to do so, and so the people wrote their own law,” said Harvey Rosenfield, Proposition 103’s main author. “If there was anything that the voters of California were saying on Election Day, it was that we want we to see what is in the books of the insurance companies and see what is causing rates to go up. Clearly, until Proposition 103 is fully in effect, it is premature to discuss other reforms.”

The insurance industry has not unveiled a legislative agenda of its own, largely because of its strong belief that the Supreme Court will overturn major provisions of Proposition 103, particularly those intended to reduce premiums by 20%. Many lawmakers seem equally convinced that the law will be upheld.

Insurers have moved recently, however, to polish their tarnished image, in part by agreeing privately to be more forthcoming with information about their own financial status. The industry also cut its ties with its long-time Sacramento lobbyist, Clay Jackson, who has been closely identified with the insurers’ staunch opposition to a range of proposed reforms.

The lucrative lobbying contract was awarded to Carpenter and Associates, one of the capital’s most successful lobbying firms. It is run by former state Sen. Dennis E. Carpenter of Newport Beach and has on its staff Kathleen Snodgrass, a one-time Jackson associate and former chief counsel to Brown.

“They learned one thing from the election, and that is that people didn’t like them,” said a source close to the insurance industry who asked to remain anonymous. “I think they recognize it as a big problem, but they don’t have a long period of time to turn things around. . . . Anything (the insurance industry) proposes at this moment might be a little suspect.”

Two-Thirds Vote

The insurers have no realistic chance of dismantling Proposition 103, largely because the initiative requires a two-thirds vote of both the Senate and the Assembly for any substantial change and permits only changes that further the initiative’s basic purposes.

The question that lawmakers face is whether Proposition 103 went far enough to curb the high cost of insurance.

The measure’s sponsors say its combination of rate rollbacks and strong regulation will keep premiums in check. The insurance industry and many lawmakers believe, however, that unless something is done to reduce the underlying cost of claims, rates eventually will be forced up, regardless of strong regulation.

“As we’ve been saying all along, the only way to finance a significant rate reduction is to design a way to reduce the cost of insurance,” said insurance industry spokesman George Tye. “That has to be our message, whether or not we can sell it.”

How well that message sells rests in large part with Robbins and Johnston.

Robbins, a savvy political deal maker with a knack for embracing popular causes, has chaired the insurance committee in the Senate since 1980. Considered to be among the Senate’s champion fund-raisers, he has collected more than $200,000 from insurance interests in the last three years, but said he stopped accepting campaign contributions from trial lawyers and auto insurers last March. He says he will accept no more contributions from any insurance interest.

No Active Role

Robbins initially urged voters to sign qualifying petitions for Proposition 103 and the other insurance initiatives on the Nov. 8 ballot, but he took no active role in any of the campaigns. Although he said running for the new office of insurance commissioner “doesn’t appear to be where I’m headed politically,” he has not ruled it out.

In contrast to Robbins’ heavily urban San Fernando Valley district, Johnston’s district covers a largely rural area of San Joaquin County. He has held his chairmanship on the Assembly Finance and Insurance Committee for less than two years. Although he is considered influential among Democrats, Johnston has carefully cultivated an independent image even while accepting about $70,000 in insurance industry campaign contributions over the last three years.

He is often mentioned as a possible replacement for Brown and has proposed his no-fault plan despite the Speaker’s historic opposition to such proposals. Johnston is probably best known around the state for the television commercials he taped last fall urging voters to oppose all five insurance initiatives on the November ballot.

Johnston initially plans to push legislation that would freeze insurance rates and require insurers to reinstate policies they canceled or refused to renew after the passage of Proposition 103. Robbins takes a slightly different approach with a bill that would force insurers to rebate money collected from higher premiums if the new law is ruled constitutional.

Both chairmen also will have to address such thorny questions as the amount of money needed by the insurance commissioner to properly enforce Proposition 103, whether the new elected insurance commissioner should be a partisan officeholder and what guidelines to establish for banks that want to sell insurance.

Uphill Battle

On the issue of insurance reform, the two lawmakers appear to be chartering different courses.

In an interview, Johnston acknowledged that he is facing an uphill battle to win approval of his bill that would enact a no-fault system. He expressed optimism, however, that the recent initiative battle may have sensitized Gov. George Deukmejian and lawmakers to the need for further reforms.

“I don’t have any illusions about the prospects of passing a no-fault bill,” Johnston said. “Interest groups are going to view these issues in terms of what’s best for them. So we’ll just argue it out.”

Like the unsuccessful Proposition 104 on the November ballot, Johnston’s no-fault bill would require that accident victims be compensated by their own insurance companies regardless of who is at fault and would allow lawsuits only in cases of certain serious injuries. Johnston’s bill would provide far more generous medical benefits than those offered by the insurance industry-sponsored initiative.

Judith Bell, a Consumers Union lobbyist, said she expects lawmakers to take Johnston’s bill seriously, contending that voters did not reject the concept of no-fault insurance when they defeated Proposition 104 but were “rejecting the insurance industry” that sponsored it.

A top trial lawyer representative, however, predicted that neither the public nor lawmakers will see the distinction between the two efforts. “The insurance companies tried to sell their initiative as a New York-style no-fault system,” said Nancy S. Drabble, the trial lawyers’ Sacramento lobbyist. “It goes against the will of the people, and it will have a skeptical audience in the Legislature.”

LIttle Enthusiasm

There are early signs that Deukmejian might veto a no-fault bill if the Legislature passes one. One Administration source who asked not to be identified noted that the Republican governor “has not shown a great deal of enthusiasm for bills that implement even a portion of a measure that was recently defeated by voters.”

Robbins, contending that the trial lawyers “will be able to fend off any life-threatening reforms,” gives Johnston’s efforts little chance of success. Robbins said he will introduce more modest reform legislation, including bills to reduce insurance fraud and establish a system of “fast-track” arbitration so that some disputes can bypass the costly court system.

Other reform proposals will probably be introduced by Sen. Bill Lockyer (D-Hayward) and Assemblyman Elihu Harris (D-Oakland), who chair the judiciary committees in each house. Lockyer said he expects to reach agreement with Harris on proposals to place “realistic caps” on attorney fees and require binding arbitration for less serious auto injury claims. He also said he plans to sponsor legislation that would reduce what he called “excessively large” punitive damage awards in certain auto accident cases.

“The insurance carriers are very unpopular people, especially right now,” Lockyer said. “But they have a legitimate point to make in saying their costs have been escalating dramatically, and something has to be done to control those costs.”