Allstate Ready to Push for No-Fault Initiative

The president of Allstate Insurance Co. said Wednesday that if the California Legislature does not act this year to authorize a no-frills, no-fault automobile policy, Allstate will be strongly inclined to join consumers and minority groups in sponsoring a 1990 ballot initiative to establish one.

Declaring in an interview that public unhappiness with the high cost of auto insurance in California threatens long-term interests of the industry, Allstate President Raymond H. Kiefer asserted:

“This is not a situation that should be allowed to linger. . . . Somewhere here, people will have to take care of consumers’ interests. It’s hard to imagine that for any prolonged period of time their concerns can go unaddressed.”

War of Insurance Initiatives

Accordingly, said Kiefer and Allstate General Counsel Robert W. Pike, Allstate is giving the most serious thought to a new round in the war of insurance initiatives that erupted in California in 1988.

But this time, they said, the company--the third-largest seller of auto coverage in California--would not be backing a long, complicated initiative like the ill-fated Proposition 104, which the insurance industry spent record amounts trying to pass in 1988 only to suffer a bad electoral beating.

The impetus for a new initiative will have to come from groups, such as the Consumers’ Union, the Latino Issues Forum and the Urban League, that have been pressing for adoption of a no-frills, no-fault policy in the Legislature. If they ask for financing for an initiative, there is a good chance that Allstate will give it and will encourage other companies to do likewise, Kiefer said.

Last week, an Assembly committee agreed to incorporate some unspecified features of the no-frills, no-fault proposal, which was authored by Assemblyman Patrick Johnston (D-Stockton), into another no-frills bill sponsored by Assembly Speaker Willie Brown (D-San Francisco).

Features of Old System

But the Brown bill retains many features of the old system of litigating claims for injuries caused in auto accidents, and this system results in legal costs that the insurers contend drive up the cost of insurance.

Brown’s bill, which calls for a $220 annual policy to satisfy the state’s mandatory insurance requirement for low-income people who qualify, is pending on the Assembly floor. The Johnston bill, calling for a $180 no-fault policy for everyone, regardless of income, did not make it to the Assembly floor and in its original, insurer-backed form is apparently dead for this year.

The Allstate officials expressed fear that the Brown bill, even if it incorporates many Johnston ideas, would at best lead to the kind of much-watered-down no-fault system that proved disastrous from a cost point of view in states like New Jersey and Massachusetts.

Kiefer said Allstate is prepared to accept the rate regulation adopted by the voters last year in Proposition 103, but it feels that a working no-fault system should be grafted onto it to bring claims costs down and allow the California insurance commissioner to keep rates low.

He noted that this is essentially the system in force in the state of New York, where, he said, with both no-fault and state rate regulation, Allstate has rates only 5% above what they were in 1983 and now has a second 5% rate increase pending.

If such a system can be implemented in California, either through an initiative or by the Legislature, then the state’s auto insurance crisis will be largely resolved, Kiefer said.

“Hopefully, then, three or four years down the road, the industry could look back and count Proposition 103 as one of the constructive things that happened to us,” the Allstate president said. “It would have forced us to review everything and come up with a solution.”

That a high-ranking insurance executive like Kiefer supports the no-fault approach is not surprising. The insurance industry has been arguing that position for two years. But what was new Wednesday was the expressed willingness to contemplate a new initiative to bring it about.

Pike, the company’s general counsel, said he felt that in 1990 the insurers, joined by consumer and minority groups, will have a better chance of fending off opposition from the trial lawyer interests and others who fought the Proposition 104 no-fault proposal in California in 1988.

“Politically, they can’t do anything to the industry in 1990 that they haven’t done already,” Pike remarked to the trial lawyers. “Proposition 103 has given the consumers everything they wanted. It’s everything the trial lawyers have always said would bring about savings. But people are seeing now, it is insufficient without no-fault.”

Pike said that no campaign consultant has yet been retained to coordinate a new initiative campaign. Last year, the insurance industry’s campaign was coordinated by Clint Reilly of San Francisco. He lost with a $63.8-million campaign, compared to expenditures for the winning Proposition 103 campaign of $2.9 million.

Kiefer and Pike were among six Allstate officials who met with a Times reporter here, in part to clarify controversial remarks at a California insurance hearing two weeks ago by Allstate general attorney Michael McCabe.

McCabe voiced Allstate’s fears about proposals for curtailing the so-called territorial rating system under which auto insurance is priced according to where a driver lives. He remarked that “socially fair prices are antithetical to the American way of life and the free enterprise system.”

He also had warned the hearing, chaired by Insurance Commissioner Roxani Gillespie: “If you force me to write business at a guaranteed loss, the incentive that affects my behavior is to treat those customers (who live in a high-risk areas) as badly as the law allows. It’s an incentive to drive them away.”

Kiefer, by contrast, declared Wednesday: “I can tell you categorically that we at Allstate never have and never will treat people any differently, regardless where they live or what their status. . . . The treatment of their claims will be the same.”

Nonetheless, he added, California ought to recognize that if regulators force insurance companies to do away with the territorial rating system, the industry will be faced with “biting into a serious loss.”

As for McCabe’s remarks about socially fair prices, Pike declared:

“By no means is Allstate opposed to socially fair prices. But you have to have government make those choices and make them equitable across the board, not require all the sacrifices of one company.”

Allstate, by contrast with some other companies, sells largely in urban areas. That means the company would suffer more than some of its rivals from any move to cut auto insurance rates in major cities.

Pike said that if California regulators move to lower rates in urban areas while raising them somewhat in suburban and rural areas, the burden of such action should be borne equally by all companies.

Pike said McCabe’s statement was intended by Allstate to lay the groundwork for legal action the company might take in reaction to any move by California regulators to curb the territorial rating system.