State Insurance Commissioner ‘Liberated’ by Ruling

Insurance Commissioner Roxani Gillespie said Thursday she felt “liberated” by the Supreme Court’s decision to uphold Proposition 103 and announced that she will quickly notify insurance companies to either roll back their rates or apply for exemptions.

The court, she noted, has given her department “a lot of latitude” in setting insurance rates and she predicted that state regulation of the industry would eventually lead to annual insurance company profits of about 15%.

“They put the ball in my lap and I’m just going to take the ball and run with it,” she said in a telephone interview from Athens, Greece. “I feel liberated now that I know what direction I have to go. The tightrope we had to walk up until now was very tough.”

Spotlight on Gillespie

After six months of public uncertainty over the fate of Proposition 103, the Supreme Court ruling focuses the spotlight squarely on Gillespie, who will now have the authority to set the rates of all insurance companies operating in California. Under the court’s decision, she will also have the power to decide how far each insurance company must roll back its rates, if at all.

The responsibility will certainly give Gillespie a high-profile position in state affairs and already has fueled speculation that she will run in 1990 for the post of insurance commissioner, which becomes an elective office under Proposition 103.

Gillespie, a former insurance executive who casts herself as a friend of consumers, said she is eager to take on the challenge of regulating the insurance industry. And even though she had flatly said in the past that she would not be a candidate for the office, she began hedging her bets, saying she has been receiving a lot of pressure to run.

Disavows Bid for Post

“I am really not intending to run for insurance commissioner,” she said. “For me it’s a really big leap. I am really not prepared to make that leap at this point. I would have to do a lot of thinking and a lot of preparation in an area that is new to me.”

Gillespie, who was born in Greece, was visiting her invalid mother on the island of Corfu when she heard Wednesday that the high court was ready to announce its decision. A local airline strike prevented her from returning to California in time for the announcement, she said, and so the commissioner “took a slow boat with chickens and goats” to Athens in order to catch a flight home today.

With the court’s ruling, Gillespie said, the department’s first act will be to issue a notice soon to insurance companies informing them that Proposition 103 requires them to roll back their rates to a level 20% below those of November, 1987.

Waiver for Rollbacks

The letter will also spell out how insurance companies can apply to the commissioner for waiver or modification of the rate rollback. So far, she said, the department has not received any applications for a rate change.

Gillespie pointed out that the court decision includes an important change in the law that will make it easier for her to modify the size of rollbacks for individual companies.

Under the initiative, insurance companies had been required to show that the rollback would have forced them into “insolvency” before their rates could be raised. The court, however, rejected that provision and ruled that the commissioner can grant relief to a company if it is receiving an “inadequate” return.

“What it has done,” Gillespie said, “is given the department a lot of latitude.”

The commissioner also said she will immediately begin hiring the first of about 200 staff members. It will take at least several months to hire the necessary employees, Gillespie said, but she maintained that it would have been inappropriate to start hiring before the court had made up its mind.

“Anything that would look like a preemption of the court was a totally wrong thing to do,” she said. “It would have been a greater embarrassment if we had begun hiring people and then had to lay them off.”

With the advent of state regulation of the insurance industry, Gillespie predicted that the market will become more uniform. Some companies that are making large profits will make less money, and others that are barely making money will be able to raise their rates, she said.

Ultimately, the Insurance Department will attempt to model its rate structure on the regulation of California utilities, which are permitted to make a 15% rate of return. But she cautioned that it may take some time to make the adjustment from an open insurance market to one that is regulated.

Even with Proposition 103 taking effect, the outspoken commissioner said drivers in Los Angeles--one of the largest blocs of supporters of the initiative--may not receive the relief they are seeking. Proposition 103, she maintained, does nothing to reduce the industry’s cost of providing insurance.

“Even in areas where we can get a rollback, I don’t think that’s going to cure our problem,” she said. “In Los Angeles, in spite of everything Proposition 103 can do, we still have a very high cost.”

But despite her criticisms of the initiative, Gillespie expressed relief that the period of waiting is finally over. Trying to prepare to implement the law was difficult while the court’s decision remained uncertain, she said.

“It’s been very, very hard,” Gillespie said. “It was such a fine line we were trying to tread. Now the green light is on, and off we go.”