Assembly GOP Kills Freeze on Insurers' Rates

Times Staff Writer

In the face of solid Republican opposition, the Assembly on Thursday defeated legislation to prevent insurers from boosting premiums through a "window of opportunity" left open by the Supreme Court's review of the landmark Proposition 103.

The bill to freeze rates and invalidate increases already ordered by State Farm and other insurers was the first major insurance legislation to come before the full Assembly since November, when voters moved to cut premiums by narrowly approving the Ralph Nader-backed measure.

The legislation's defeat not only underscores the insurance industry's continued clout with lawmakers, it casts doubt on the future of other legislative efforts aimed at punishing insurers that try to circumvent the initiative.

The bill was rejected on a near party-line vote, with Democrats arguing for the need to "uphold the will of the people" but Republicans raising fears that its passage would drive insurers out of California and lead to a state-run insurance system. The vote was 46 to 24 in favor of the bill, eight votes short of the two-thirds majority of Assembly members needed for "urgency" measures that take effect immediately.

After the vote, Democratic Assemblyman Patrick Johnston of Stockton, the bill's author and chairman of the Finance and Insurance Committee, said he would seek to have it reconsidered. But he conceded that the outcome is not likely to change unless policyholders rise up over "the next insurance company (premium) increase atrocity."

Assembly Speaker Willie Brown (D-San Francisco) was even less optimistic about the chances of future insurance legislation.

"It shows there are still people who are responding basically to that industry and to that industry's demands," Brown said. The Speaker, who is among the Legislature's most vocal critics of the initiative process, added: "My guess is that those who feel strongly about it may have to go back to the initiative."

Still, Brown and other legislative leaders said they are hopeful that the premium increases put into effect since the election will be overturned by Insurance Commissioner Roxani Gillespie. Gillespie has ordered hearings into the State Farm rate increase and could strike it down if it is found to be discriminatory or unjustified.

"I think the insurance industry will get clobbered by her," Brown predicted. "She will read the poll results and not the demonstration of (insurance industry) influence we saw on this floor."

If it had been put into force immediately after the election, Proposition 103 would have required insurers to reduce rates on property and casualty policies to a level 20% below what they charged on Nov. 8, 1987, and to freeze premiums at those levels until the initiative's regulatory structure takes effect in November of this year.

But the Supreme Court, in agreeing to review the initiative's constitutionality, stayed the rollbacks and the rate freeze, thereby lifting any restrictions on rates. State Farm's 9.6% increase by itself is estimated to affect 17% of auto policyholders in California at a cost of $50 million a year.

The Supreme Court has scheduled arguments on the case next week and is expected to issue its ruling within 90 days of the hearing. If the court strikes down the 20% rollback, as insurance executives predict, higher rates imposed by insurers since the election will remain intact.

Johnston warned the Assembly that unless the Legislature closes the loophole, insurers will be unable to avoid the temptation of immediate rate hikes. "Without this legislation, we have a window of opportunity for insurers to raise their rates virtually at will and set themselves up for the future," he said.

But Republicans said the bill was merely an attempt to grab headlines and would ultimately drive insurers out, leaving state government as the insurer of last resort. "It's impossible to repeal the laws of supply and demand," said Republican Assemblyman Tom McClintock of Thousand Oaks.

Harvey Rosenfield, author of Proposition 103, said the rejection of the rate-freeze bill along party lines is "very disturbing when 103 was approved on a bipartisan majority." He added: "I wonder if the Republican Party isn't taking a dangerous gamble" in aligning itself with insurers.

Lobbyists for the insurance industry, however, argued that the bill was rejected not because of the industry's ties to Republicans but because it "was a bad bill."

"It doesn't make sense either politically or economically," industry spokesman George Tye said. "It freezes our rates while our costs continue to rise. . . . If our costs were stable then perhaps a freeze on premiums might be more palatable."

Aside from highlighting insurer clout, Thursday's vote and other recent actions illustrate the continued fractiousness of the Legislature, in which warring interests--represented by insurers on one side and trial lawyers on the other--still are able to block action contrary to their interests.

In addition to the defeat of the Johnston bill, Senate President Pro Tem David A. Roberti (D-Los Angeles) has had to severely scale back his bill aimed at preventing insurers from switching new clients into more expensive coverage. If passed in its form now, it will not take effect until next year, long after the court has ruled and the initiative's regulatory structure is in place.

Another bill seeking to punish insurers that arbitrarily cancel policies has narrowly passed the Senate but has virtually no chance in the Assembly unless a number of Republicans break ranks. Sen. Alan Robbins (D-Van Nuys), the bill's author, said he hopes to turn up the political heat by bringing consumer advocate Nader back to California to focus public attention on his bill before a final showdown on the Assembly floor.

Both the Roberti and Robbins bills are strongly opposed by insurers.

On the other side of the equation, there has been no action on a bill, opposed by trial lawyers, that would attempt to cut the cost of insurance settlements by imposing a New York-style no-fault system in California.

Brown, a longtime friend of the trial lawyers, predicted that no major insurance reform bills would pass this year unless the traditional stalemate is broken.

'Hasn't Been Much Change'

Despite the passage of Proposition 103 and widespread claims of a "voter revolt," Brown conceded that "there hasn't been much change" within the Legislature.

"The insurers have to give up something, the trial lawyers have to give up something and the consumers will have to scale down their demands for a good quality piece of legislation to pass," Brown said.

Robbins, who is a co-author of the rate-freeze bill, said those who expected changes in the Legislature, similar to those that accompanied voter passage of the property tax-cutting Proposition 13 in 1978, left one factor out of the equation--money.

The Legislature, he said, passed a series of tax-cutting bills after Proposition 13's adoption because there was no monied special interest standing in the way. In the case of Proposition 103, insurance companies, he said, showed that they can be an almost unlimited source of campaign contributions. They spent upwards of $60 million on their losing initiative campaign.

"They showed political officeholders of California that they had the capability to bring out heavy artillery in a size unmatched in the political process," Robbins said.

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World
60°