Some Insurers Tell State They Will Give Partial Rate Rollbacks

Insurance Commissioner Roxani Gillespie said Monday that some insurance companies have “unofficially” notified her department that they will be giving at least some of the rate rollbacks called for in Proposition 103.

Gillespie said she will not disclose the names of the companies until she sees which ones meet a June 16 deadline for filing formal affidavits declaring their intent to give rollbacks.

But she also told a San Francisco news conference that the “vast majority” of companies already had filed for exemptions from the rollbacks. Saturday was the deadline for such filings, and Gillespie showed reporters 850 boxes of documents submitted with the exemption requests.

She said that a task force of 70 departmental employees will start sorting through the materials immediately and that hearings to determine whether the applicants qualify for exemptions will begin within two months and will be completed by Nov. 8.

In its recent decision upholding most of Proposition 103, the state Supreme Court said the commissioner could exempt companies from the initiative’s 20% rollback from 1987 premium levels if the companies could show that cutting premiums that much would prevent them from receiving a fair rate of return in their business.

More than 700 companies are licensed in California to sell property and casualty insurance--including auto, homeowners, commercial and many other types--but Gillespie said she could not say Monday precisely how many had applied for exemptions.

Companies that missed the filing deadline will be required to grant the rollbacks whether or not they volunteer to do so, the commissioner said.

Gillespie identified only one company that had filed for an exemption--State Farm, the largest auto and homeowner insurer in the state. A second major company, Farmers, issued a press release on its own saying that it had applied.

Low Return Claimed

The Farmers statement said the company was receiving a return of only 2.3% on its private passenger auto insurance business and only 3.4% on its homeowner lines. However, Gillespie said it will be up to her to determine if these figures are accurate and whether an exemption is justified.

The commissioner’s statement that some companies had unofficially said they would be voluntarily giving rollbacks was the first word from any authoritative source that any rollbacks are in the immediate offing.

The state Supreme Court said that companies giving rollbacks would have to rebate, with interest, excessive premiums collected since the date of the election in November.

According to the original terms of Proposition 103, the rollbacks were to have been granted immediately after the election, and there was to be a price freeze for one year, until November, 1989. After that, all new rates were to be subject to the prior approval of the commissioner.

Under these original terms, the only way a company could be exempted from the rollbacks was to demonstrate to the commissioner that it was in danger of insolvency.

Court’s Decision

However, the Supreme Court struck down the insolvency clause, and substituted the fair rate of return standard for deciding on exemptions, a considerably easier test for insurers to meet. It indicated the companies could charge any rate they wished prior to a determination by the commissioner on whether they qualified for an exemption. And after next November, the high court allowed the commissioner to grant the companies authorization to charge an interim rate, pending her approval of a new rate filing.

One consumer expert who has carefully followed implementation procedures on Proposition 103, and who met last week with Gillespie, cautioned Monday that companies which choose to give rollbacks might confine cuts to obscure lines of insurance that serve only small numbers of customers.

“Is it going to be boiler insurance or automobile insurance?” asked Steven Miller, head of Insurance Consumer Action Network. “Companies expecting that the commissioner is going to require hefty rollbacks might seek to get out in front of her by voluntarily giving modest rollbacks. We are simply going to have to wait and see which lines are involved, and then to what degree.”

Gillespie had said previously that she reserves the right to order partial rollbacks, if that would most closely satisfy the fair return standard.

She reiterated Monday that she will allow each company a fair return on each line of insurance it sells, not lump all lines together for a general determination, and that she will consider only each company’s California business, not its entire business, in making the determinations.

Hearings Scheduled

Gillespie also called two-day public hearings for Los Angeles, on June 19 and 20, and San Francisco, on June 22 and 23, to solicit comment on proposed language for regulations she plans to issue implementing details of Proposition 103.

She said she wants a great deal of such public input, and issued a special appeal for public views on how to implement Proposition 103’s mandate that beginning in November all “good drivers” with not more than one moving violation in the last three years be given a 20% discount off basic auto insurance rates.

Presumably, when such a discount is given, drivers with bad driving records will have to be charged higher rates.