Positions of Both Sides Soften on Pricing Issue at Prop. 103 Hearings

Some bits of common ground have begun to emerge in the ongoing debate between Proposition 103 backers and insurance companies over the practice of basing auto insurance rates on where a driver lives.

Proposition 103 specifies that a driver’s safety record, the number of miles driven and overall driving experience must be given greater weight in rate setting than where the policyholder resides.

But Proposition 103 author Harvey Rosenfield said for the first time Friday that factors other than the three listed in his measure could be collectively given greater weight in pricing auto policies.

Appearing at the last of four days of hearings on implementation of Proposition 103, Rosenfield told state Insurance Commissioner Roxanni Gillespie that it should be up to the insurance companies to produce statistical evidence to justify reliance on any other factors.

He stressed that the so-called territorial rating system, which bases rates on where a driver lives, should be de-emphasized.

Some major insurers, meanwhile, have been suggesting that they could support a new pricing system that relied less on territorial rating, while not doing away with it altogether.

At Monday’s hearing, a spokesman for 20th Century proposed a weighted pricing system that would downplay territorial rating in relation to the factors listed in Proposition 103. On Thursday, State Farm representatives also suggested a pricing system that would take other factors into account.

Rosenfield said Friday that he would try to meet with 20th Century officials to discuss a weighting formula.

In the course of the hearings, Gillespie has repeatedly urged both the insurers and consumer representatives to come up with suggestions for a new pricing plan that de-emphasizes the territorial rating system insurance companies have clung to for years.

Under that system, people in urban areas, particularly Central Los Angeles, are charged the highest auto insurance rates because those are the areas where traffic congestion and accident rates are the worst and where claims made against insurers are epidemic.

Radical Change

It will be Gillespie who decides what new pricing system to use. She and her staff signaled this week that they want to avoid a radical change that would send prices in rural and suburban areas soaring and those in urban areas plunging.

Gillespie will publish draft regulations later this summer and hold hearings on them in August.

Rosenfield’s testimony Friday, for the most part, was subdued, and clashes some had expected between him and Gillespie did not develop.

Gillespie asked no questions and made no remarks while Rosenfield spoke, although she said later she believes that he is “trying now” to cooperate with the Insurance Department in developing its regulatory interpretations of Proposition 103. She called his testimony “edifying.” Earlier, Rosenfield had called for Gillespie’s ouster, but he did not do so Friday.

Meanwhile, an Allstate official, who had disparaged “socially fair prices” as “antithetical to the American way of life and the free enterprise system” in testimony at the hearings Thursday, said Friday that he had spoken “inartfully” and he amended his remarks.

Michael McCabe, Allstate group vice president and general attorney, said Allstate is “fully committed” to lowering insurance prices in urban areas and it supports a bill that has been proposed in the Legislature that would establish a no-frills, no-fault policy to be sold at a flat $180 annual rate throughout the state.

McCabe said that while Allstate believes existing prices in California are “economically fair,” the Legislature might thus choose to change them to make them “socially fair.”

But, he said, such moves are appropriate only in the Legislature, not through regulations that may be promulgated by Gillespie.

Also testifying at Friday’s hearing was state Board of Equalization member Conway Collis, a prospective candidate for insurance commissioner when the post becomes elective next year. Like Rosenfield, he suggested that a 20% “good driver’s discount” prescribed in Proposition 103 should mean a 20% reduction from base rates, not simply be a differential from the rates charged bad drivers.

Insurers have generally said that since 90% of their policyholders or more would qualify for the good driver’s discount, it is not economically feasible to lower prices below what they are now.