State Is Still a Good Market for Insurers, Governor Says

Gov. George Deukmejian, reiterating a pledge to faithfully implement Proposition 103, said Saturday that California, “the largest auto insurance market in the nation, is still an excellent place to do business.”

“That goes for insurance and any other industry,” the governor said, commenting on the consumer-oriented insurance initiative in his regular Saturday radio address.

Deukmejian said he has “complete confidence” in his insurance commissioner, Roxani Gillespie, “to get the job done fairly, thoroughly and expeditiously.” He noted that he is asking the Legislature to approve a $24-million, or 69% increase, in her department’s budget to pursue rate regulation and other Proposition 103 programs.

Message From Voters

“Last November, voters sent a message that they are very dissatisfied with the cost of insurance in California,” the governor said. “Now that the Supreme Court has ruled on the constitutionality of the measure, I have directed our Department of Insurance to implement the provisions of Proposition 103 as completely and quickly as possible.”

Deukmejian noted that Gillespie has promised to decide by November all requests by insurers for exemptions from the 20% premium rollbacks from 1987 levels called for under the measure.

He took no position on whether the rollbacks should be implemented, observing only that the burden is on the insurers to prove to the commissioner that rollbacks would be “confiscatory and deny a fair rate of return.”

Gillespie, he said, “will carefully review these requests on a case-by-case basis . . . so that policyholders will know whether or not they are entitled to a reduction in their premiums, a refund or both.”

Deukmejian opposed Proposition 103 and four other insurance initiatives that were defeated on last November’s ballot. Both he and Gillespie have been the target of suggestions by backers of the measure that they may not fully implement it.

Demand From Nader

Consumer advocate Ralph Nader, a leading sponsor, called for Gillespie’s resignation earlier this month. Last week, after Gillespie announced procedures for deciding on exemptions from the rollbacks, sharp criticism came from Michael Strumwasser, an insurance expert who is a deputy to state Atty. Gen. John K. Van de Kamp.

Strumwasser criticized Gillespie’s announcement that insurers are entitled to a “fair and reasonable rate of return” on each line of insurance that they sell, and that it is on that basis that she will decide whether a rollback is in order. This policy would, Strumwasser said, lead to fewer rollbacks and refunds than if Gillespie lumped together all lines and assessed each insurers’ general profitability.

Saying that many insurers are making a lot on homeowners and some other lines and less on auto insurance, the Van de Kamp deputy suggested that the method of review announced by the commissioner would be likely to lead to few rollbacks of auto insurance prices, the ones the public most object to.

“There is nothing in the Supreme Court’s decision on Proposition 103 that requires a line-by-line fair return,” Strumwasser said.

Gillespie responded by pointing to two footnotes in the high court’s decision that she said mandated a line-by-line review.

“It’s a very basic concept in insurance, to talk about a rate for a single line,” she said. “Anything else is cross-subsidization, which might be OK in other industries, but never in insurance.”

Strumwasser said he believes Gillespie’s interpretation is wrong and might be challenged in court.