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Insurance Focus Shifts to Gillespie : Bias for Industry Alleged; She Must Quit, Nader Says

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Times Staff Writer

Just 24 hours after the state Supreme Court upheld most of Proposition 103, state Insurance Commissioner Roxani Gillespie was already caught in a cross fire Friday between consumer activists and the insurance industry as insurer requests for exemptions from the measure’s rate rollbacks began flowing into her office.

Consumer advocate Ralph Nader, charging that Gillespie is biased in the industry’s favor, demanded that she step down and urged Gov. George Deukmejian to appoint “someone with an impeccable background of impartiality and competence.”

“Commissioner Gillespie should tender her resignation and step aside, because she has irreversibly prejudiced herself against any fair implementation of the refund provisions,” said Nader, Proposition 103’s best-known supporter.

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‘Outright Hostility’

He charged that Gillespie had sought to discredit the initiative before voters passed it in November and has displayed “skepticism, if not outright hostility, toward her obligations to implement those provisions which were not stayed by the . . . Supreme Court.”

Gillespie spokeswoman Carey Fletcher said Gillespie will not resign.

“She is not going to resign. She has no reason to resign. . . . She is the consumer commissioner,” said Fletcher, who related that Gillespie once said, “ ‘Being criticized by Mr. Nader is a little like being criticized by Mother Teresa. What are you going to do?’ ”

Harvey Rosenfield, chairman of Voter Revolt, the organization that sponsored Proposition 103, said Friday that in his view Gillespie “will not dare” exempt too many companies from the rollbacks provided in his initiative.

Reduction Mandated

Proposition 103 says that unless they are granted exemptions by the state insurance commissioner, insurers must roll rates back 20% from what they were charging for the same coverage in November, 1987--a year before the initiative was approved by voters.

Under Thursday’s court ruling, insurers who apply for exemptions can charge higher rates, but if the commissioner eventually orders them to implement rollbacks, they will have to refund, with interest, any premiums they have collected above the allowable levels.

Rosenfield predicted that Gillespie ultimately will order insurers who have charged higher rates to make sizable refunds.

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“She’s going to fight this tooth and nail for about an hour and a half, and then there will be a firestorm,” Rosenfield predicted. “There’s going to be so much pressure on her to come through for the people and give the rollbacks.”

Noting that Gillespie was in Greece Thursday when the high court rendered its decision, Rosenfield remarked, “She ought not to come back from Greece if she’s going to take the approach that all of these companies have a right to charge the rates they’re charging.”

Rosenfield’s statements drew a quick rejoinder from industry lawyer Allen M. Katz, who pointed out that the Supreme Court in its decision had instructed Gillespie that the insurance companies should earn a “fair and reasonable” return on their business.

Even if insurers decide not to appeal the court’s decision to the U.S. Supreme Court, Katz said, they will certainly appeal to the courts any Gillespie decision not to exempt companies from the rollbacks, if those companies can reasonably justify their rates.

“Our right of appeal from these administrative decisions is explicitly pointed out in the court’s opinion,” Katz declared.

Spokesmen for several companies reiterated Friday that they feel confident that their present rates will be upheld in hearings that Gillespie is expected to order soon after returning to her office on Monday.

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Insurers’ Comments

Jeffrey Byers of the Farmers group of companies declared: “Certainly we feel fairly positive about the opportunity to present documentation on our rates and that they will meet the standards of fair and reasonable return which were confirmed by the court. Our rates have always been fair, and we welcome the opportunity to provide information to support them.”

Kathleen Hogan of Allstate said, “We feel the rates we’re going to file are fair and reasonable, and we think the insurance commissioner will also find them fair and reasonable.”

Alan Morris of the Automobile Club of Southern California said, “We feel very confident that the rates we’re currently charging, which have been in effect since January, 1988, are not excessive.”

Morris pointed out that last year Gillespie began requiring that companies increasing their annual premiums by 10% or more file advance notice with her so she could challenge the increases if she felt they were unjustified.

“We filed and were not challenged,” Morris said. “So in effect the (Insurance) department has already given approval to the rates that were filed and are currently in use.”

But an Insurance Department spokeswoman said Friday that the Supreme Court decision sets new procedures for establishing rates, and any company seeking an exemption will have to be evaluated anew.

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Despite insurers’ confidence that they will prevail, some political observers said Friday that insurance has become such a politically charged issue in California that both Gillespie and Deukmejian, who appointed her, are unlikely to favor the companies.

“I feel she will bend toward the consumer view on the rollbacks,” said state Sen. Alan Robbins, chairman of the Senate’s Insurance Committee, “and I think the guidance she’s going to get from the governor will also lean in that direction.”

But Nader painted a much darker picture.

Big Issue for ’90 Election

“She comes from the insurance industry to her post, and she’s likely to return to it. The people should know she’s likely to return to it,” Nader said, predicting that if the Republican governor allows Gillespie to remain in office he would be handing Democrats a potent issue in the next gubernatorial election.

“If Commissioner Gillespie performs like an executive of Aetna, the refunds will not be forthcoming and the issue will become a dominant factor in the 1990 gubernatorial election,” he said.

Others predicted that political considerations would give way to legal and administrative factors, pointing out that, under the law, Gillespie will have to establish intricate procedures and conduct extensive hearings before she can do anything about the rollbacks.

“Politics right now is the least relevant issue,” said Steven Miller, head of the Insurance Consumer Action Network. “It’s an administrative task. There are a host of regulatory decisions to make.

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“Gillespie must articulate those standards by which she will review the rates the companies are charging. She must define what data she’ll require and most importantly what will be, in her mind, the standard by which to judge a fair rate of return. She has to do all that before she can judge the applications for exemptions.”

Miller expressed the view that some rollbacks and rebate checks will be ordered by Gillespie, particularly in the areas of homeowners and renters insurance. He said that any lengthy delays by the insurance commissioner in ordering these would only “further disadvantage consumers.”

Harry Snyder, West Coast director of Consumers Union, said the method of Gillespie’s deliberation must be fair and meticulous.

“I think these are not the days of Robespierre,” said Snyder in a reference to the French revolutionary who liberally used the guillotine against political opponents. “The due process supported by the court means the insurance companies and the consumers get due process.”

No Action Taken

Snyder noted, as did Miller, that Gillespie had balked, while the Supreme Court was considering the insurers’ lawsuit challenging the constitutionality of Proposition 103, at writing any administrative regulations looking forward to enforcing provisions of the measure, particularly the key ones on rate regulation.

“We’ve been asking the commissioner for a long period for action on this,” he said. “She refused. . . . Now she must act quickly to establish the procedures.”

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Gillespie was reported en route home Friday and was not available for comment. But Fletcher, her spokeswoman, said she expects some announcement on rate hearing standards and procedures as early as Monday.

“Our legal department has been working on these,” Fletcher said. “They will be ready on the commissioner’s return.”

In the meantime, she said, the Insurance Department does not expect a flood of exemption filings for a few days.

“Any kind of filing requesting an exemption would have to provide extensive information,” Fletcher said. “They wouldn’t be waltzing through the door this morning.”

However, Fletcher said late in the day that 10 companies had filed letters seeking exemptions and “the department is reviewing them to see if they qualify as valid applications for rate relief.”

The companies included four big insurers--Allstate, 20th Century, Mercury and Prudential.

It was clear Friday that extensive administrative hearings, for perhaps thousands of separate rate filings, will eventually have to be held.

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“We’ve been discussing here at State Farm who won in the Supreme Court decision,” said Kim Brunner, an attorney at that insurer’s Illinois headquarters Friday. “I guess the way I read the decision is that the government bureaucracy wins.”

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