Assembly Panel Delays Vote on Premium Freeze

Under threat of a legal challenge, an Assembly committee on Tuesday delayed a vote on legislation intended to freeze insurance premiums until the state Supreme Court rules on the constitutionality of Proposition 103.

Assemblyman Patrick Johnston (D-Stockton), who chairs the Finance and Insurance Committee, agreed to put off the vote for one week after it became apparent that the absence of several Democrats and a strong assault by the insurance industry--including the threat of a lawsuit--had eroded support for his measure.

Johnston said the delay would give him time to consider ways of resolving concerns expressed by insurance lobbyists that a freeze on premiums would unconstitutionally deprive the industry of a reasonable profit.

“A legislative freeze is highly dubious constitutionally,” warned former Assemblyman Alister McAlister, who once chaired the committee and now lobbies on behalf of the insurance industry. “It may make you feel good doing it. But it will be challenged, I guarantee it.”

The bill was intended to close a loophole created by the state Supreme Court’s decision to stay portions of the successful November ballot initiative, including a provision requiring a 20% rate rollback for most lines of insurance. The stay apparently gave insurers the right to not only maintain their current rates but to raise them virtually without restriction while the battle over Proposition 103 is waged before the high court.

Johnston drafted his bill after several insurance companies sought to take advantage of the stay on Proposition 103 by raising premiums. Others, such as the California State Automobile Assn., had changed their rate structures before voters approved the initiative but held back many of the actual premium increases until this year.

Specifically, the legislation would bar insurance companies from boosting rates above what they charged on Election Day, Nov. 8, 1988. Companies that did raise rates would be required to refund the excess within 90 days or reduce policyholders’ future payments.

The legislation also would require insurers that canceled or refused to renew policies to offer coverage to their former policyholders.

Johnston told the panel that if it did not act, “we would be victimizing the public with significant rate increases.”

The lobbyists--the only witnesses who testified before the committee--countered that it is unfair to keep a lid on premiums when there is a good chance that the Supreme Court eventually will rule that the rollbacks and restrictions on rates are unconstitutional.

“You will be locking many companies into the situation where they not only don’t have a fair return on their investments but they will lose large sums of money,” said State Farm lobbyist Gene Livingston.

Some critics of Johnston’s bill said they believe that Insurance Commissioner Roxani Gillespie already has the power to keep rates in check, so there is no reason for the Legislature to act before the Supreme Court rules.

Gillespie, however, disagreed. “A (rate) freeze cannot be achieved by the department,” she told reporters. “Unless the rate can be termed to be excessive . . . I can do nothing.”

The insurance commissioner, who in recent weeks has been accused by lawmakers of dragging her feet in acting against insurers that violate the law, struck back Tuesday, saying: “Too many cooks spoil the broth. The Legislature is better off legislating. If they are going to make comments about the executive (branch), they had better do their homework first.”

In a related development, a coalition of organizations representing the poor, Latinos and consumers met with Gillespie on Tuesday to promote a plan for a state-run system of no-fault car insurance. The proposal, according to these groups, is aimed at an estimated 6 million California drivers who are uninsured and who would be able to purchase coverage under the plan for as little as $200 annually.

Under the no-fault concept, motorists are compensated for injuries by their own insurance companies no matter who is at fault. The plan offered Tuesday would provide minimum coverage and allow others desiring higher levels of protection to purchase additional insurance.

“Proposition 103 is a good idea; however, it ignores the needs of low- and modest-income families,” George Dean, president of the California Council of Urban Leagues, told reporters after the meeting with Gillespie. “Every Californian, not just the affluent, should have affordable basic insurance.”