First Prop. 103 Rulings Due in July--Gillespie

State Insurance Commissioner Roxani Gillespie on Thursday promised that she will make all of her decisions by Nov. 8 on whether to grant insurance companies exemptions from the rate rollbacks required under Proposition 103 and that the first rulings will come by late July.

Outlining her procedures for deciding which, if any, rollbacks and premium refunds will be ordered, Gillespie said that she is notifying all insurers that they must either roll back rates to 20% less than 1987 levels by June 3 or file a detailed application with her department justifying a higher rate.

Under last week’s state Supreme Court decision upholding most of Proposition 103, insurers who apply for exemptions from the rollbacks can charge the higher rate they apply for, but if Gillespie eventually orders them to implement rollbacks, they will have to refund, with interest, any premiums they have collected above the levels she allows.

Long Appeal Process

The insurance commissioner noted, however, that any orders on rollbacks and refunds she may issue can be appealed by the insurance companies “all the way to the U.S. Supreme Court,” delaying actual refunds to customers until long after the November deadline she set.

Subject to the rollback provisions of Proposition 103 are lines of insurance ranging from those covering automobiles, boats, plate glass and other property to polices guaranteeing mortgages, providing liability protection and covering legal malpractice. This includes all homeowner and auto policies sold in California.

At a news conference here, Gillespie announced that in order to allow the Insurance Department to perform all the new regulatory functions it has been given under the initiative and by the Supreme Court, Gov. George Deukmejian has approved a budget increase for next year of $24.1 million as well as 263 new staff positions.

If approved by the Legislature, that would mean the department would have $59.5 million to operate in the 1989-90 fiscal year and its staff would increase to 788. The department is generally funded by levies on the insurance industry.

Under the Supreme Court decision, Gillespie must use as her standard a “fair and reasonable” rate of return for each company in determining whether the rates they submit are allowable or whether rollbacks and refunds will be ordered.

However, on Thursday, she declined to give a specific figure for what she would consider a fair rate of return, saying it would vary company by company depending on such factors as the degree of risk it was assuming, its return on equity and its income from both premiums and investments.

“There is no one number for fair return,” she said. “Companies are very different.”

Gillespie said that following the court order, she would not consider any past surpluses a company may have gathered as a factor in deciding if a rollback was merited. In short, she said she would not penalize a company now for its profits in the past.

She said she would rule on what constitutes a fair return for each line of insurance offered by each company applying for exemptions and would not lump the lines together for a single determination.

Also, the insurance commissioner said she reserves the right to decide on a partial rollback, should the “fair return” line fall somewhere between the Proposition 103 rollback level and the rate the company wants to charge. This, she noted, could result in one company, for example, being ordered to roll back auto insurance rates 4%, while another insurer was ordered to implement an 8% rollback.

Gillespie suggested she would apply a “harsher” standard on the companies during the rollback hearings and deliberations than she would after Nov. 8, the deadline for the department beginning full rate regulation of the companies.

She said this was because under the rollback procedures established by the Supreme Court, a company must first demonstrate that the Proposition 103 rollback levels would be “confiscatory” in nature. Only after the Insurance Department makes that finding will the company be allowed to argue that the rates it is charging bring a fair and reasonable return.

Later, however, insurance industry attorney Allen M. Katz pointed out in an interview that the Supreme Court, in a footnote to its decision, had stated that the “confiscatory” and “fair and reasonable” standards are “not separate tests.” Accordingly, Katz suggested that Gillespie is not legally entitled to apply a “harsher” standard on insurers now than she will use later.

Gillespie, meanwhile, released detailed financial forms each company must fill out to apply for exemptions from the rollbacks. Although she said that about 100 companies have already conveyed their intention to apply for exemptions, all will have to start their efforts anew by filling out the forms.

The information requested, Gillespie said, is aimed at discovering, with much greater precision than in the past, just what happens to each dollar in premium a customer pays.

The commissioner also told the insurers that under public disclosure requirements of Proposition 103, they must provide a copy of their applications to members of the public who request them.

Companies filing an application for exemptions will be required to pay a minimum of $2,500 to the department for processing and more may be charged them if the processing takes a lot of time, Gillespie said.

She said she will submit emergency regulations for conducting hearings on rollback exemptions to the California Office of Administrative Law next week and that a hearing will be held on permanent rules in early August.

“Quite simply, we’re in business,” Gillespie said. “We’ve been planning for months to move on the different Proposition 103 decisions that might have been handed us by the court. We’re excited. It’s a big job, but we can do it.”

As the commissioner spoke, about 20 pickets from the Voter Revolt organization, sponsors of Proposition 103, marched outside, demanding that she resign. One demonstrator carried a sign saying, “Prop 103 is here to stay, Roxy get out of the way.”

Last Friday, consumer advocate Ralph Nader, a leading sponsor of Proposition 103, had called on Gillespie to step down, terming her “irreversibly prejudiced . . . against any fair implementation of the refund provisions.”

Asked about this Thursday, Gillespie said she will be “completely fair” and “independent” in doing her job.

“All I can say to Ralph Nader and anybody else is, ‘Read the court’s decision,’ ” the commissioner said. “We’re going to do exactly what they say.”

In the long run, Gillespie said, the “paramount” consideration will be an awareness that “urban voters really would like to pay less for auto insurance. . . . I’m going to stay close to that goal and for the long haul.”

She said that when Proposition 103 is fully in effect next November, with rate regulation and other features, a driver’s record rather than the territorial rating system, under which inner-city residents, particularly in Los Angeles, have been charged the highest rates for auto insurance, will be the prime factor in rate-setting.

Still, the resulting savings to Los Angeles residents will not be enough to make insurance affordable, she said. Other steps will be necessary to reduce the costs of insurance, she suggested.

First reaction from the industry and consumer advocates to Gillespie’s remarks Thursday was mixed.

George Tye, a spokesman for the Assn. of California Insurance Cos., the industry’s leading lobbying arm in Sacramento, said the industry was pleased that Gillespie was acting quickly to decide on the rollbacks, and that from her statements it recognizes that it is “entirely possible” that she will eventually order some rollbacks and refunds.

Tye said he could not say whether such orders would be appealed to the courts.

Harvey Rosenfield, chairman of Voter Revolt, questioned whether the “fair rate of return” standard followed by Gillespie will be “a rate of return for a reasonably efficient company or a reasonable rate of return for the typically wasteful, fat or greedy company.”

Rosenfield said he was disturbed that Gillespie did not consult with Voter Revolt and independent consumer advocates in establishing her procedures and that he will soon submit a public records request for every meeting she may have had with insurers in developing such procedures.

A more favorable reaction came from Steven Miller, head of the Insurance Consumer Action Network, a group that is often represented at Insurance Department hearings.

“I’m quite pleased with what she said,” Miller said. “It’s frankly more than I expected.” But Miller said some issues may remain between consumers and the commissioner over the precision of data she is requesting from the companies seeking exemptions.