Rebates May Be Smaller, Long Way Off

No insurance company offered Thursday to rebate any money to consumers in the wake of the state Supreme Court decision upholding, with qualifications, the Proposition 103 insurance rate rollbacks and other major portions of the landmark initiative.

As initial consumer organization euphoria about the high court’s decision faded, there was a recognition that rebates, at the very least, will be a long time in coming and may never amount to anything like the 20% from 1987 levels called for in the measure.

This was strongly indicated by state Insurance Commissioner Roxani Gillespie in a telephone interview from Athens, where she was visiting her mother.

Gillespie, who will be charged with deciding which insurance companies should be exempted from the rollbacks, said the state Supreme Court decision tells her to allow each insurer a fair rate of return.

The fair return standard, she said, will permit the companies to charge higher rates than they would have been able to charge had the court not thrown out the “danger of insolvency” standard that originally was part of Proposition 103.

She has said in the past that such a fair return standard would even allow the insurers to charge higher rates than they are now getting. It is very close, she noted Thursday, to the standard set in Proposition 100, the California Trial Lawyers Assn. measure that was rejected by voters last November.

Long Fight

There was agreement Thursday by almost all parties to the long fight over insurance rates that the Supreme Court decision ushers in a new era of much more stringent state regulation of insurance rates. But there was disagreement on whether this will mean lower rates.

A. Michael Frinquelli, an industry analyst at Salomon Brothers in New York, spoke for many when he remarked:

“I think the turmoil now simply shifts from the Supreme Court to the insurance commissioner’s office.”

A spokesman for the state’s largest seller of auto insurance, the State Farm company, summed up the industry reaction on the question of rollbacks and rebates when he declared:

“We view this as a decision that will not immediately affect the premiums that are being charged to our policyholders. The court’s opinion does seem to require us to file a rate application in order to obtain relief from the rollback provision, and I would expect that we would be doing that for all lines that are affected.”

In the meantime, State Farm counsel Kim Brunner said his company will continue to charge according to its present rate schedule and wait on the decision of Gillespie as to what constitutes a fair rate of return to the company.

Even as insurers indicated that they will fight any rebates or rollbacks, the lead lawyer for Voter Revolt, sponsors of the Proposition 103 campaign, said he believed that consumers ought not to expect any rebates for a year.

Legal Briefs

The attorney, Joseph Cotchett, predicted that the insurance companies will “take every step they can to delay” rolling back their rates or sending out any checks to make up for excess rates charged. He said they will inundate Gillespie’s office with legal briefs arguing against rollbacks.

“Thousands of trees are going to be down to (produce the paper to) file these motions,” he said. “It will be a tragedy for our forests.”

However, Harvey Rosenfield, chairman of Voter Revolt, expressed some chagrin at his lawyer’s remarks and declared, “I think we’re going to see refund checks much sooner.”

Rosenfield added that heavy political pressure may have to be put on Gillespie and the Deukmejian Administration to bring about this result.

“Every insurance consumer’s refund is now in the hands of the insurance commissioner, and I doubt she will block the will of the people,” Rosenfield said.

If she does, he said, “the entire Deukmejian Administration will be jeopardized (politically).”

Besides, Rosenfield went on, “in every case where the commissioner refuses to order the rebates where they are warranted, we will litigate it.”

State Controller Gray Davis, a supporter of Proposition 103 in last fall’s campaign, declared, “The court’s opinion makes the insurance commissioner an even more pivotal figure. My office will audit her to make sure the promise of 103 becomes a reality.”

Concern Voiced

But even Davis expressed concern about the impact the high court’s new “fair return” standard for insurance company rates may ultimately have.

Atty. Gen. John K. Van de Kamp, a prospective Democratic candidate for governor who had argued for Proposition 103’s constitutionality before the Supreme Court, called it “a great victory for California consumers and for voters.”

Consumer advocate Ralph Nader called it “a great and lasting victory for Californians” that would “also have major impacts on insurance reform drives in many other states.”

But second thoughts soon set in. Assembly Speaker Willie Brown (D-San Francisco) warned that under the high court’s decision, the insurance commissioner’s job “becomes much more powerful” and said of the court, “They passed the responsibility to the insurance commissioner almost exclusively to determine whether a rollback is proper or not proper.”

By the time an insurers’ news conference was held in Sacramento in the afternoon, it was not so clear who had actually won, at least as far as the level of rates was the issue.

Allen M. Katz, one of the industry’s lawyers in the Supreme Court case, said he believed that in rejecting the “danger of insolvency” standard of Proposition 103, the high court had actually given the industry much of what it really wanted.

“The court says that the Constitution requires that if you regulate a business’s rates, you’ve got to give it a fair rate of return,” Katz said. “That’s what we urged. . . . We feel that we prevailed on the primary issue in the case, which is that the insurance industry--if it’s going to be regulated--has to be given a fair rate of return.”

Katz did not rule out an appeal of the state decision to federal courts, but he said:

‘Balanced Opinion’

“I don’t see any major problem with the opinion. The opinion appears to me to be a balanced opinion. But we are studying it carefully and will have a final answer (on a possible appeal) in a few days.”

Some insurer representatives were not so happy, noting that there would be much more regulation of the industry. Richard Wiebe, a spokesman for the Alliance of American Insurers, said that while “there seems to be a lot of gray area in the decision . . . clearly it’s a new day for insurance regulation in California.”

The giant Allstate Co., in a statement issued from its Illinois headquarters, said the bottom line to it is that their present rates are justified.

“The decision of the California Supreme Court is by no means a victory for either the insurance industry or our customers,” Allstate said in the unsigned statement. “(But) the Supreme Court gave insurers the option to file rates which meet the standards of adequacy and ‘fair return.’

“As such, Allstate intends to make a rate filing that meets the tests of adequacy and fair return. Our current rates we believe clearly meet those standards.”

Rebate Checks

One consumer advocate who questioned this, however, was Steven Miller, head of the Insurance Consumer Action Network and chairman of the ill-fated Proposition 100 campaign. He said he does expect to see some rollbacks and rebate checks, but they may not be so much in automobile insurance.

“People forget that Proposition 103 deals with far more than auto insurance,” Miller declared. “My feeling is that the rollbacks people will ultimately see will come from homeowners insurance more than auto insurance. There’s no doubt in my mind that consumers will receive refunds in some lines, most likely in the homeowners’ coverages, renters’ insurance and very likely also in the physical damages coverage of auto insurance.”

Miller indicated that the key liability portions of auto insurance premiums may not go down at all.

As in the past on the fractious insurance issue, Gov. George Deukmejian had very little to say Thursday.

He confined his remarks to one sentence: “I have consistently maintained that we would faithfully implement the will of the people as interpreted by the court, and that applies to Proposition 103.”

Referred Calls

At first, the state Insurance Department said Gillespie would not have anything to say and referred calls to a Deukmejian Administration official, John Sullivan, undersecretary in the Business, Transportation and Housing Agency, who has seldom spoken publicly on insurance questions.

But later in the day, Gillespie started making calls to reporters from Greece.

She said she plans to act quickly to bring her rate hearings into accord with the standards set by the Supreme Court and, while setting no deadlines, indicated that she will make rate decisions expeditiously.

Beginning in the 1990 elections, according to a section of Proposition 103 upheld in Thursday’s decision, the post of insurance commissioner will become elective, and two prospective candidates for the job were among those commenting.

Both of the would-be candidates, Conway Collis, a member of the State Board of Equalization, and television commentator Bill Press, said they would be keeping a close eye on Gillespie to see that she sided with consumers.

“I think this is the most radical shift in power in California since Hiram Johnson beat the railroads,” Press said. “Insurance commissioner I think now will be the second most powerful office in Sacramento.”

Also contributing to this story were Times staff writers Dan Morain in San Francisco, Doug Shuit in Sacramento and Louis Sahagun in Los Angeles.