3 Big Firms May Avoid Rollbacks : Gillespie Says Lower Insurance Rates Unlikely for Most Drivers
Insurance Commissioner Roxani Gillespie said Tuesday that three of California’s largest auto insurers--State Farm Mutual, the Farmers group and the Automobile Club of Southern California--are among hundreds of companies that are likely to be exempted from all rollbacks called for under Proposition 103.
The three big companies alone control a third of the California insurance market.
It is now “a fair prediction that by and large” most Californians are “not going to get lower auto insurance rates” as a result of the insurance initiative passed last November, Gillespie said, unless the Legislature adopts other reforms, such as no-fault insurance.
Although she did not categorically rule out ordering rollbacks for 219 companies, including the three big sellers, she put them on a “slow track” hearing process she said could take as long as 10 years to complete.
This represented a sharp departure from her earlier promise to make all her rollback decisions by Nov. 8. She explained Tuesday that there is simply too much to do by that time.
Fashioning ‘Guidelines’
She said that instead she now hopes to have fashioned “guidelines” by then that she hopes some companies will voluntarily follow.
Gillespie also conceded Tuesday that the state’s least efficient insurers are most likely to be given exemptions because they operate on a thinner profit margin, while more efficient companies showing healthier profits are most likely to be ordered to give the rollbacks.
The Republican commissioner’s statements were greeted with outrage by consumer leaders and Democratic politicians as the political dispute surrounding insurance issues intensified.
Consumer advocate Ralph Nader declared, “Gillespie has now displayed the fraud of her office by prejudging the rollbacks before securing and analyzing the facts. Her attack on the rollback rights of millions of California consumers assures that she will become a decisive political albatross around the necks of Republican office seekers next year.”
Atty. Gen. John K. Van de Kamp said, “The snail’s pace process announced today means that the rate rollbacks consumers demanded in Proposition 103 are years away, if ever . . . California’s consumers voted for real insurance reform and deserve a better deal.”
Gillespie announced her actions at a news conference one day before a deadline for setting hearings or allowing automatic exemptions from the rollbacks.
She said that she is granting Proposition 103 exemptions to 183 small companies, most of which do less than $20 million in annual California business. No further proceedings are in prospect for them. They simply do not have to refund any money to their California customers.
Meanwhile, Gillespie called hearings for 13 companies and filed an intent to hold hearings for 34 others. She said she believes these firms ought to be subject to rollback orders totaling more than $800 million, most of it in other than auto insurance lines, such as homeowners, commercial and fire.
Among the 13 companies are seven companies Gillespie has tentatively ordered to give a total of $305 million in rollbacks, subject to hearings. Gillespie said these companies, including Allstate, Safeco, 20th Century and USAA, are among the most efficient sellers, which accordingly make higher than normal profits.
The commissioner projected that $815 million in rollbacks will eventually be ordered, compared to about $4 billion that would have resulted if Proposition 103’s call for a 20% rollback of premiums from 1987 levels were fully implemented.
Gillespie remarked that she has come under fire from investors who note that the rollback procedure she is following penalizes the more efficient companies. But, she said, she is circumscribed by a recent state Supreme Court decision that said companies were entitled to relief if they could show that the rollbacks would prevent them from earning “a fair rate of return.”
Inefficient companies are likely to receive a lower return than efficient ones, but Gillespie has set a flat 11.2% annual return as the standard she will use for all companies, ignoring consumer group suggestions that she not give credit for company inefficiencies.
The other 219 companies that filed for exemptions, including the three big sellers, will be put on the “slow track” hearing process that could take 10 years to complete. Actually, Gillespie said, by Nov. 8 she only expects to complete the 13 hearings she already has scheduled. Out of these, she said, her rollback guidelines will come.
The 219 insurers on the slow track are companies that Gillespie said she does not believe have sufficient profit levels to give rollbacks. She remarked that she was agreeing to eventual hearings for these companies only because Van de Kamp and State Board of Equalization member Conway Collis had formally demanded them under provisions of Proposition 103.
“A couple of California politicians have petitioned the department,” Gillespie remarked disdainfully. “The requests were unnecessary; the paper work redundant.”
But Van de Kamp and Collis said they believed they were right in calling for the hearings.
“The only good news is that, at my request, (these) requests for exemption from the new law will not be granted until at least some hearing occurs, although no schedule yet exists for that review, which the commissioner conceded could drag on as long as 10 years,” Van de Kamp said.
Likely Candidate
Collis, a prospective candidate for the commissioner’s post when it becomes elective next year, said, “If Voter Revolt and other consumer groups, the attorney general and I hadn’t intervened on behalf of consumers, she apparently would have granted all the exemption requests.
“We have felt that Commissioner Gillespie is biased in favor of the insurance industry,” Collis added. “But now the industry is running the department.”
Another prospective contender for the Democratic nomination for commissioner, television commentator Bill Press, said:
“I think she (Gillespie) ought to resign . . . She is defying the law and the will the voters. She has prejudged the issue. I don’t trust her numbers. I don’t think she’s done the independent analysis of the numbers the insurers have given her that is required. It’s an act of political suicide.”
Harvey Rosenfield, head of Voter Revolt and the author of Proposition 103, said, “Gillespie must go. (She) has now proven herself to be hopelessly biased toward the insurance industry. . . .
“Independent studies show that State Farm, Farmers and the Auto Club are among the most highly profitable insurance companies in California. Their rates have been excessive for many years. Yet Gillespie claims that they cannot afford to roll back their rates. She has based her conclusions on the insurance industry’s own phony numbers and artificial bookkeeping practices. It is a travesty of justice.”
But Gillespie said that her department personnel had concluded, based on their own assessments, that the companies in question simply do not realize the 11.2% standard for defining a “fair rate of return.”
She said State Farm Mutual, for instance, is receiving only a 6% return on its California business and that Farmers “is having a problem.” She did not elaborate.
In the news conference, Gillespie had a less confident demeanor than at many prior such meetings, remarking frequently that deciding on the rollbacks was an extremely complicated and difficult business.
“What we have tried to do is use common sense,” she said. “We have tried to disentangle the morass.”
Although the commissioner freely gave her estimates for how companies would fare during the hearing process on exemptions, she also said at one point, “We cannot prejudge.”
On Aug. 1, Gillespie had set hearings for Allstate, State Farm Fire and Casualty (a secondary State Farm company), USAA, California State Auto Assn., Safeco, 20th Century and Progressive Casualty, tentatively ordering the $305 million in rollbacks.
Tuesday, she called for quick hearings on six other companies, United Pacific, United States Fidelity and Guaranty, Government Employees Insurance Co. (GEICO), Fireman’s Fund, Century-National and Calfarm. “This new group represents potential rollbacks of more than $110 million to California policyholders,” she remarked.
The 34 other insurers served with a notice of intent to hold hearings “could represent about $400 million in potential rollbacks,” she said.
Altogether, those companies called for hearings off the slow track appear to be above the 11.2% profit line she has set as the standard, Gillespie said.
