Insurance Chief Steers to Avoid Big Rate Hikes : Hearing Shows How Prop. 103 Plans Would Affect San Diego County Motorists

State Insurance Commissioner Roxani Gillespie opened five days of hearings on Proposition 103-mandated changes in auto insurance pricing methods in San Diego on Monday with a pledge to “channel” the law to avoid large rate increases for millions of policyholders.

Gillespie’s pledge may be good news for policyholders in San Diego, the San Joaquin Valley, rural Northern California and the Inland Empire who might otherwise under Proposition 103 find themselves subsidizing lower prices in Los Angeles and San Francisco. But, for policyholders in the urban centers, it means there is apt to be little pricing relief.

Faced with deciding just after Labor Day what to do about the existing system of basing prices very largely on where a policyholder lives, Gillespie indicated that she may direct that the residency factory be applied only on a regional or countywide basis.

‘More Good Than Harm’

“I will try to channel the law to make sure it does more good than harm,” the insurance commissioner said.

By way of illustrating, Gillespie said that, if there is a flat regional rate applied in San Diego and the Inland Empire, the average auto insurance rate would rise by 3% in Imperial County and 2% in San Diego County, but decline by 1% in San Bernardino County and 4% in Riverside County.

If, by contrast, countywide rates were applied, she said the average rate in San Diego County would rise by 14% in La Mesa and 8% in Vista, but go down by 2% in San Diego and 5% in La Jolla.

At a hearing to be held today in Los Angeles, Gillespie may reveal estimates for what the possible alternative systems would do in Los Angeles, Orange and Ventura counties.

One thing to bear in mind, however, is that the estimates are based on averages. There would be greater fluctuations in individual rates, if either of the new systems were applied as a replacement for the present sharp neighborhood-by-neighborhood variations.

Criteria for Rates

Proposition 103 says that a driver’s safety record, miles driven and years of driving experience should be used, in that order, as the most important criteria for setting rates. But it allows Gillespie to name other factors as well, such as place of residence, marital status, sex and age, as long as they are shown to have an influence on claims costs.

Gillespie said Monday that applying this literally by imposing a flat rate statewide could result in rate increases in some areas of up to 60%. In only three of the state’s 58 counties--Los Angeles, Orange and San Francisco--would rates go down.

On Monday, as the hearings opened, the positions of the various parties had not changed since June, when earlier hearings were held.

Insurance industry representatives warned that doing away with or subverting neighborhood-based pricing would cause enormous price increases for most Californians and save money only to those who live in highly populated counties.

On the other side, Proposition 103 author Harvey Rosenfield charged that Gillespie is engaged in “fraud” and “propaganda” in warning that implementing Proposition 103 could mean large increases for many. He charged that the insurance industry is withholding from Gillespie data on what would happen if the proposition’s rating criteria were used, and he said she should not make up her mind what to do until the companies provide the data.

Gillespie had a mild response, remarking that she wished Rosenfield and his Voter Revolt organization would work with her rather than against her. But she did say she would like more pricing data from the companies.

Testimony Predictable

Much of Monday’s testimony followed predictable lines.

Politicians, insurance agents and insurance company representatives who spoke were opposed to anything that might raise rates in their areas in order to lower them elsewhere. And San Diegans of all stripes were outraged by the idea that, under some scenarios, already apparently rejected by Gillespie, their rates would rise so that rates in Los Angeles could go down.

Former San Diego Councilman Bill Cleator voiced the prevailing sentiment when he remarked, “L.A. was fouled up because that was the way it was planned.”

Besides San Diego and Los Angeles, this week’s hearings will also take place in Fresno, San Francisco and Eureka. Of those places, Proposition 103 carried only in Los Angeles and San Francisco. In the other areas, and 50 of the state’s 58 counties, voters apparently bought the insurance industry campaign argument that Proposition 103, applied literally, would do what Gillespie has concluded it would do, raise most policyholders’ rates.

At Monday’s hearing, a number of insurance agents appeared from north San Diego County and Imperial County communities to express fear that alterations in the pricing system, no matter what they were, would adversely affect their policyholders.

Question of Subsidy

Otis Wood, an agent from Brawley in Imperial County, asked that Imperial not be thrown into a single region with San Diego, because, he said, Imperial County prices are now well below those in San Diego, and Imperial County policyholders should not be made to subsidize those in San Diego.

Agents from Carlsbad and Vista also saw such dangers to their communities, although they said their policyholders would prefer subsidizing fellow San Diego County residents, if it came to that, to subsidizing Los Angeles residents, if a statewide rate were adopted.

Carmen Irene, an aide to Assemblywoman Carol Bentley (R-San Diego), told the hearing that “legislators for San Diego County have over the years consistently opposed measures promoted by Los Angeles legislators to abolish territorial averaging (neighborhood-based pricing).”

“We have always been successful until Proposition 103 was approved,” she lamented. She called on Gillespie to do everything the commissioner could to maintain the old system.

John Mamaux, a Carlsbad city councilman, however, was pleased that Gillespie’s countywide pricing alternative would reduce average auto insurance rates in his city by 2%.

George Tye, a spokesman for the Assn. of California Insurance Companies, the Sacramento-based lobbying arm of the industry, said he had helped coordinate many of the agent appearances.

The room appeared filled mainly with agents, although one man, Ray Foster, who said he represented groups of mobile home owners in the San Diego area, testified that he and his followers were increasingly disenchanted with delays in implementing parts of Proposition 103 calling for a rate rollback and other savings to consumers.

Single-County System of Setting Rates Regional System of Setting Rates

These charts show estimates by Insurance Commissioner Roxani Gillespie on price changes that would occur, if she were to adopt either regional or countywide pricing systems for auto insurance. Both new systems could not go into effect at the same time; Gillespie would have to choose one. And she might adopt neither. If she chooses one, it would replace the present system of basing rates largely on the neighborhood where a policyholder lives.