Senate Revives, OKs One Anti-Insurer Bill but Rejects Another

The insurance industry’s efforts to hold steady against a tide of anti-industry sentiment brought mixed results Thursday as the Senate revived legislation that would prevent arbitrary policy cancellations but rejected a bill to keep insurers from using a variety of techniques to boost premiums.

Both measures encountered strong opposition from Republicans, who argued that their passage would create an anti-business climate in California.

Just last week, the Senate, in the absence of several key supporters, narrowly rejected the bill, by Sen. Alan Robbins (D-Van Nuys), to severely punish insurers that order blanket policy cancellations. On Thursday, Robbins was able to pick up the bare two-thirds majority needed to reverse last week’s action and send the measure to the Assembly on a vote of 27 to 9.

Gains Some Support

Robbins revived his measure, in part, by picking up support from three Republicans.

But Senate President Pro Tem David A. Roberti (D-Los Angeles) saw his measure defeated on a straight party-line vote, 24 to 12. The bill, which required 27 votes for passage, was aimed at keeping insurers from forcing new clients into more costly policies.

After the vote, Roberti pledged to bring the bill back for reconsideration, but would not say when.

“I’ll do it as soon as I have the 27 votes,” Roberti said. “This was just the preliminary gambit. I had to do what Sen. Robbins did last week to see who is with me. Now I can work on the other votes.” Thursday’s split decision underscored the partisan tug-of-war that has emerged in the insurance debate since voters in November, facing steadily increasing auto insurance costs, narrowly passed the Ralph Nader-backed Proposition 103.

There appears to be solid majority support in the Democratic-controlled Legislature for measures seeking to punish insurers that try to circumvent the initiative’s restrictions. But because most of these bills are “urgency” measures designed to take effect immediately, they require a two-thirds vote for passage.

That means Republicans, despite their minority status, can sidetrack the bills if they vote as a bloc.

The Robbins bill was introduced after it appeared that some insurers would make good on threats to cancel policies and pull out of the state after voter approval of Proposition 103.

The initiative already bars cancellations except where good cause can be shown, which includes failure to pay premiums or a substantial increase in risk. Violators are subject to fines of up to $100,000. The Robbins bill would impose much stiffer fines, including a maximum penalty equal to half the premiums collected in the previous year on all canceled policies.

Ultimately, few companies followed through on the threats, giving the insurance industry much less reason to oppose the bill.

Travelers Backed Down

Travelers Insurance, the largest insurer to order blanket cancellations, backed down under pressure from state Insurance Commissioner Roxani Gillespie. On Thursday, Gillespie ordered four smaller insurer groups to halt their practice of refusing to renew auto policies. The orders were directed at National Indemnity Co., AIU Insurance, Central Mutual Insurance and its affiliate All American Insurance, and Dairyland Insurance and its affiliate Sentry Insurance.

In addition to the cancellation provisions, Robbins’ measure would close a loophole in Proposition 103 under which some drivers convicted of drunk or reckless driving could nonetheless qualify for 20% “good driver” discounts once the initiative’s regulations are fully in force.

Republican Sens. John Seymour of Anaheim and James Nielsen of Rohnert Park voted for the bill last week when it fell three votes short of passage and did so once again on Thursday. In addition to picking up the votes of two Democrats who were absent last week, Robbins garnered an additional Republican vote on Thursday from Sen. Newton R. Russell of Glendale.

After the vote, Robbins said he would seek to have the bill considered by the Assembly Finance and Insurance Committee before the end of February.

It is not clear what kind of a reception the bill will face in the Assembly. No major insurance bill has been put to a floor vote in the lower house since voters passed Proposition 103. Legislation to freeze insurance rates until the Supreme Court completes its legal review of the initiative narrowly passed the Assembly Finance and Insurance Committee and is awaiting a floor vote.

Compared to the Robbins bill, the Roberti insurance legislation poses a more difficult and complex array of problems for insurers.

The measure would impose tough penalties on insurers who stop issuing new auto policies, on those who channel new applicants to affiliated firms that charge more for the same coverage, and on those who change their underwriting standards so that premiums for new applicants rise by more than 5%. Senate sources familiar with the insurance industry maintain that a number of companies have used one or more of these techniques to cut their losses or to increase revenues.

Under the bill, the state insurance commissioner would be required to revoke the licenses of companies found to have “willfully” violated its provisions.

Bankruptcy Potential

Sen. Seymour, one of the three Republicans who supported Robbins’ bill, said he could not vote for the Roberti measure because it has the potential of bankrupting the insurance industry and paving the way for a state-operated insurance system. “The only thing this bill does is cut the legs off the insurance industry and guarantee that someday we will have state insurance,” Seymour said.

Roberti countered that without severe penalties, insurance companies may seek to punish voters for supporting Proposition 103.

“Many people voted to change the law out of a deep sense of frustration and I don’t believe they should be penalized because they expressed themselves at the polls,” he said.