Prop. 103 Pricing Methods Seen Unworkable in L.A.

Methods of auto insurance pricing designed to implement Proposition 103 without causing huge premium changes for policyholders would not work in Los Angeles, Orange and Ventura counties, according to charts released Tuesday by Insurance Commissioner Roxani Gillespie.

The charts indicate that, while the regional pricing plans now being studied by Gillespie would mean premium reductions for congested parts of Los Angeles, they would mean big rate hikes for millions of drivers in the suburbs.

Under the neighborhood pricing system now used by insurance companies, suburban drivers pay less while the highest rates are paid by inner-city residents.

Proposition 103 calls for de-emphasizing where a driver lives, so Gillespie is studying plans that would do away with the neighborhood-by-neighborhood approach in favor of uniform treatment for all drivers within a larger geographic area.

Under one approach, the three counties--Los Angeles, Orange and Ventura--would be lumped together in one region. This, Gillespie said, would mean average premium increases of 32% for policyholders in Ventura County and 15% for those in Orange County, while giving Los Angeles County drivers an average 7% decrease.

If, on the other hand, she were to adopt a county-by-county pricing system, she said the premium fluctuations would be negligible within Orange and Ventura counties but would be huge within Los Angeles County.

The charts showed that a countywide rate in Los Angeles County would force Palmdale residents to pay nearly 60% more for auto insurance, Norwalk residents to pay 20% more and Pasadena residents to pay about 10% more, while residents in Van Nuys would pay about 18% less, those in Santa Monica 20% less and those in Beverly Hills more than 45% less.

The concept of regional pricing would work out well in the San Francisco and San Diego areas, according to charts previously released by Gillespie, with the prices of most auto policies not changing much.

But in the Los Angeles-Orange-Ventura region, or a possible two-county Los Angeles-Orange region, the disparity in prices would be so great that the system would not have the desired effect.

Gillespie, it is clear, does not want to implement a new pricing system that is going to result in outraging millions of policyholders, even though it may please millions of others.

She has already rejected a statewide rate, which would result in almost the whole state paying more so that Los Angeles and San Francisco drivers could pay less.

Other Factors

And on Tuesday she was markedly more noncommittal than she has been in recent weeks on how to interpret Proposition 103 provisions making a driver’s safety record, annual miles driven and years of driving experience the most important factors in pricing auto insurance. Place of residence would be relegated to a subordinate status.

But a ranking Gillespie aide remarked privately that the more the situation is studied, the more the commissioner seems to lean toward preserving the status quo as much as possible.

Gillespie herself remarked Tuesday that she believes that if she did away with neighborhood-pricing, used only the factors mentioned as most important by Proposition 103, and established a flat statewide rate schedule, such a decision would be upset by the courts.

She said it would fly in the face of other provisions of Proposition 103 that hold that rates should not be excessive, inadequate or unfairly discriminatory, because the new flat rate would be excessive in some areas, where claims against insurers are low, and inadequate in others, such as Los Angeles, where they are high.

However, since Tuesday’s hearing was in Los Angeles, parts of which would benefit by any literal interpretation of Proposition 103’s pricing provisions and where the insurance prices are the state’s highest, many of those who testified suggested that Gillespie is not being bold or quick enough to implement Proposition 103.

The commissioner was assailed for inaction on rate rollbacks and other parts of the initiative by television commentator Bill Press, a prospective Democratic candidate for insurance commissioner next year. And Mark Ridley-Thomas, executive director of the Southern Christian Leadership Conference, suggested that under the present system of insurance pricing, “minorities and the poor are currently subsidizing low rates elsewhere in the state.”

Conway Collis, a Democrat who also plans to run for insurance commissioner, appeared for the Voter Revolt organization that sponsored Proposition 103 and suggested that data provided Voter Revolt by a few insurance companies showed that the factors of driver record, miles driven and years of experience mentioned in the measure may be better predictors of future accident and theft claims than a driver’s place of residence.

Collis conceded that only sketchy data was yet available, and that in the matter of driver records and miles driven, much more information would have to be collected before new methods of pricing could be implemented, but he urged Gillespie to start moving in that direction.

He did not try to analyze who would have rates raised or lowered if the new criteria were used in place of one’s residence.

Gillespie, a Republican who also has plans to run for commissioner when it becomes an elective post, said she is willing to analyze Collis’ data, but she said the validity of a policyholder’s place of residence as a predictor of claims has been demonstrated.

Nonetheless, she added later, she is prepared to convene a meeting of various consumer and insurance company experts to try to see if agreements can be reached on some issues in the rating controversy.

Meanwhile, Judith Mintel, appearing for State Farm, the largest seller of auto insurance in the state, urged Gillespie to make a decision on what rating factors can be used in the future, and their order of importance, and whether rates will be flattened regionally or by county, as soon as possible. She said it will take the companies weeks, if not months, to adjust bills through their computers to reflect the commissioner’s wishes.

HOW PRICING SYSTEMS COMPARE

These charts show estimates by Insurance Commissioner Roxani Gillespie on price changes that would occur if she were to adopt one of the regional or countywide pricing systems for auto insurance she is considering. Chart on left shows how premiums would be affected in representative cities if Los Angeles County were designated a single territory for the purpose of pricing insurance; center chart shows how premiums would be affected if Los Angeles and Orange counties were combined into one territory; chart on right shows how premiums would be affected if Los Angeles, Orange and Ventura counties were combined into one territory. Only one system could go into effect at a time, and Gillespie might ultimately decide not to adopt any of these. If she chooses one, it would replace the present system of basing rates largely on the neighborhood where a policyholder lives.

Los Angeles County: Premiums reduced: 40% or 1.035 million vehicles Premiums increased: 60% or 1.536 million vehicles Orange and Los Angeles Counties: Premiums reduced: 30% or 1.103 million vehicles Premiums increased: 70% or 2.557 million vehicles Ventura, Orange and Los Angeles Counties: Premiums reduced: 29% or 1.13 million vehicles Premiums increased: 71% or 28 million vehicles Source: California Dept. of Insurance 1987 Premium Data