Despite Rate Hike, It Will Lose Money, Insurer Says
A national official of State Farm, defending the company’s recently announced 9.6% average statewide auto insurance rate increase, told a legislative hearing Thursday that even after the $149-million increase, the company will still lose $124 million on its coverage of private passenger autos in California this year.
Pete Ingham, general counsel of State Farm, the state’s largest auto insurance seller with about 2.7 million vehicles covered, said in an interview after testifying that the company had not ordered a larger increase now because it feared this would inspire more political pressure on state Insurance Commissioner Roxani Gillespie to rescind it.
Gillespie has called a March 20 hearing in San Francisco at which the company will be required to justify the 9.6% increase as not excessive under state law. In the meantime, the insurer is implementing the increase as it sends out policy renewals.
In six months to a year, however, Ingham said in the interview, State Farm will have to raise its California auto rates again unless dramatic action is taken by the Legislature to hold down rising insurance claims by making changes in the civil justice system.
Ingham noted that the increase falls on policyholders unevenly. Those who carry only the state-required minimum liability coverage will get a 17% increase.
Shortly after Ingham testified before the Insurance Committee hearing chaired by Sen. Alan Robbins (D-Van Nuys), it was disclosed that another insurer, Geico, has raised its auto insurance rates in California.
Geico President Eugene J. Meyung said in a telephone interview that, effective Wednesday, the company, which has about 2% of the California auto insurance market, began to implement an increase averaging 9.8%.
Meyung said a 13% or 14% increase would have been justified, and he noted that his company has ceased selling to new auto insurance customers in California because, he said, it is losing money here.
The Los Angeles hearing began with strong criticism against the insurers from Robbins, Senate President Pro Tem David Roberti (D-Los Angeles) and Harvey Rosenfield, chairman of the Voter Revolt organization that sponsored Proposition 103.
“At every step, and at every turn, the insurance industry has used and is using its formidable resources to thwart, escape and elude Proposition 103 and the will of the people,” Roberti said, noting that the industry has gone to the state Supreme Court in an effort to have rate rollbacks called for under Proposition 103 struck down.
Rosenfield charged that State Farm’s rate increase is “the ultimate act of thumbing the industry’s nose at the people of California,” and he urged the insurer’s customers to take their business elsewhere.
He also complained about a new national advertising campaign being undertaken by the industry against Proposition 103-style price controls and for changes in the legal system.
The Proposition 103 chairman cited a published report that the Insurance Information Institute, an industry trade group, has plans to spend $93 million on the new advertising effort.
But institute spokesman Peter van Aartrijk denied that anywhere near that large an amount will be spent. He said that $1 million is going into a series of full-page ads in a number of nationally circulated newspapers and that “the rest of the campaign has not yet been set.”
Another subject of the hearing concerned the insolvency and impending liquidation of Coastal Insurance Co., which has served 200,000 California auto policyholders, 80% of them in Southern California.
Harry O. Miller, chief of the company, challenged the assertion made Feb. 3 by Gillespie that most of the firm’s financial problems revolved around a $26-million “illicit dividend” to its parent company, Advent Management.
Miller said there was nothing illicit about it. He said Advent Management, which he disclosed will announce its bankruptcy and impending liquidation next week, had 1,100 employees who performed all policyholder services for Coastal, while Coastal only had six employees. The $26 million that Coastal gave Advent was for its services, and now Advent is just as broke as Coastal, he said.
Robbins, Rosenfield and Steven Miller of the Insurance Consumer Action Network, meanwhile, criticized Gillespie at the hearing for refusing to publicly disclose rate filings by State Farm and several other companies.
Deputy Insurance Commissioner Charlene Mathias said that “in the spirit of Proposition 103,” Gillespie will release the filings of State Farm next week. But until rate regulation provisions of Proposition 103 go into effect next November, she said, the department does not think it is legally required to release such filings.
