Less Than 1% of Drivers Get Premiums Cut
A close examination of the companies listed as voluntarily rolling back rates on private passenger auto insurance policies, in accord with Proposition 103, shows that less than 1% of the state’s insured motorists are getting the reductions.
Insurance Commissioner Roxani Gillespie released the list last week. Regulators and consumer advocates initially estimated that 10% or fewer of the state’s auto policyholders would see a voluntary reduction of rates. In fact, the 10% estimate was far too high.
Although not all of the companies were responsive to inquiries, it is clear that premiums amounting to less than $120 million, of a total of $12 billion, are being voluntarily reduced 20% below 1987 levels, as called for in Proposition 103.
List Is Short
According to the list, seven companies said they would roll back auto liability premiums. Sixteen said they would roll back auto physical damage premiums.
Meanwhile, hundreds of companies have applied to Gillespie for exemptions from the rollbacks, on grounds that giving them would deprive the firms of a fair and reasonable return on their business. The commissioner has promised to rule on all these requests by Nov. 8, but any decision by her to force a company to roll back its rates would be subject to individual court appeals.
A few of the companies voluntarily rolling back their rates said they do so little auto insurance business in California--as little as just $5,000 annually in one case--that it would have cost them more or nearly as much to file for exemptions as to take the rollbacks.
Some other insurers said they had gotten out or were getting out of business in lines in which they had voluntarily agreed to give a rollback, so it didn’t make any sense to go to the expense of filing for an exemption.
Others listed told The Times they had confined their rollbacks to a few lines of business, while applying for exemptions on the lion’s share of it.
For instance, American Road Insurance, with $101 million in auto insurance business in California last year, has the most business of any company listed as giving rollbacks. But an executive with the company said that American Road is actually giving rollbacks on only $1.5 million of those premiums, while applying for exemptions on $99.5 million.
Rollbacks Not the Rule
The entry released by Gillespie for American Road Insurance had an asterisk, noting that “some sub-lines may not apply” to be rolled back, as did a number of the other entries. It appears, based on interviews with company executives, that where there is an asterisk, the rollbacks may be more the exception than the rule.
Originally, one aim of the survey by The Times was to discover differences in philosophy between companies that are voluntarily rolling back their rates and those that are applying for exemptions. But the responses indicated there was little difference in philosophy involved. More often, it was simply a matter of rolled-back lines of business being small and unimportant or so new that no facts had yet been gathered to justify an exemption on the basis of reasonable return.
Although auto insurance was the focus of Proposition 103, which was approved by voters in November, its rollback provision also applies to a wide variety of property and casuality insurance. Altogether, 230 companies were cited in Gillespie’s report as rolling back rates in at least some portion of their business.
But most of the coverages rolled back pertain to commercial lines of coverage, and prices of commercial insurance policies have been dropping sharply anyway in the last year. Therefore, little or no extra sacrifice is entailed in rolling back rates.
None of the major auto insurance sellers in California voluntarily rolled back any auto rate at all.
Only one major seller, USAA, rolled back its homeowners rate. A company spokesman, Paul Schattenberg, said that the Texas-based company serves mainly active duty and retired military people and their dependents. He said it would refund about $8.3 million, plus paying $300,000 interest, to 104,000 California homeowner policyholders.
“The actual 20% decrease is a result of some positive California court decisions that are going to improve our loss experience on homeowners’ claims,” Schattenberg explained. “They happened to come along at the same time as Proposition 103.” One key decision, he said, came in March when insurer payments to homeowners were restricted in cases of landslides and other natural disasters.
Court Ruling Cited
Although USAA cited the court decisions as a reason for being able to go along with Proposition 103 rollbacks in homeowners insurance, no other major seller of such policies in California has given a rollback. All the others applied to Gillespie for an exemption.
State Farm, the state’s largest seller of both auto and homeowner insurance, was listed in Gillespie’s report as giving but one rollback, through its Fire and Casualty subsidiary, for aircraft insurance.
But company spokesman Jerry Parsons said that actually the aircraft rollback decision had been made by independent administrators for a pool of insurers known as the U.S. Aircraft Insurance Group and was not made by State Farm. Only a few hundred State Farm policies are involved, he said.
The company with just $5,000 worth of auto insurance business that volunteered a rollback was Chiyoda Fire & Marine Insurance, based in Chicago. Jim Morris, a lawyer for the company, explained, “Basically, the reason was we would have had to pay a $2,500 (exemption) filing fee, and 20% of $5,000 is less than $2,500.”
Business Allowed to Lapse
Dick Griebel, vice president for communications for Transamerica Insurance Groups, said that Transamerica Specialty, a subsidiary that writes about $1 million a year in auto insurance in California, was voluntarily rolling back its auto rates. “There’s very little business written in this company and what there is is expiring,” Griebel said. “There’s still some business on the books, but it’s being allowed to lapse.”
Similarly, a spokeswoman for Westfield Insurance, an Ohio-based company listed by Gillespie as rolling back more lines of insurance than any of the other companies cited, said it was actually meaningless, because Westfield sold all its California business last July to another company and is no longer doing any business in the state.
Like American Road Insurance, other companies indicated only a tiny percentage of their total California auto lines is being rolled back. For instance, Greg Madson, vice president of pricing and government affairs for Viking Insurance of Wisconsin, said that only about $1 million of its $23-million total auto business in the state is being voluntarily rolled back.
“We didn’t have much business being written in that program, a physical damage line written in connection with assigned risk,” Madson said. “It was a new product. . . . In most of our business, we did apply for an exemption.”
A vice president of Motors Insurance, a General Motors subsidiary, would not divulge how much of the $30 million that his firm receives in annual California auto premiums is being rolled back.
“We don’t tell anyone what our premium split is, because it’s proprietary information,” said G. Sheldon Barquist. “It’s very competitive.” Besides, he went on, Motors doesn’t want to say anything until it sees how its requests for exemptions fare.
But at American Road, a Ford subsidiary, Jim Hammond, manager of insurance operations, did not cite proprietary considerations in willingly revealing that the firm is giving a rollback on only $1.5 million in annual California auto premiums.
Of that amount, $466,000 involves sale of coverage for tractors and other farm equipment and there “is no credible California data base” upon which to apply for an exemption, Hammond said. The rest, approximately $1 million, has to do with auto collision coverage for dealer demonstration cars only, he said, and is really more a commercial than a private passenger line, although Gillespie listed it under private passenger.
Jefferson Insurance Co. of New York was not responsive to questions about why it was voluntarily rolling back its $1 million in auto premiums in California. Secretaries said two company officials would call back with information. When one of them was finally reached, he brusquely denied knowing anything about the matter and referred the call to the second official, who he said was out of the office until this week.
Bob Young, senior vice president of Atlanta-based Standard Guaranty Insurance, said his company had rolled back an unspecified amount of its $3.7-million annual California auto business, because, “Basically, we had such a small book of business, we just felt it was in our best interest to comply with 103.”
The state Supreme Court ruled in May that when companies roll back rates, they are supposed to send a check for the amount collected since November that is in excess of that allowed under Proposition 103, plus 10% annual interest.