Delay Urged in Assigned Risk Car Policy Rate

Staff attorneys of the state Insurance Department urged Thursday that a proposed 112.3% average increase in auto insurance rates for more than a million drivers insured under California’s assigned risk plan be indefinitely delayed pending a restructuring of the plan to include a special rate for low-income drivers.

The call for delay in implementing even part of the increase came after representatives of a coalition of 15 minority groups testified at a Los Angeles hearing that, if it were adopted, rates as high as $2,187 a year for minimum liability insurance in south, east and central areas of Los Angeles could require many families to pay more for insurance than they do for food. The statewide average rate would be about $1,500.

Such “exorbitant” charges would force as many as 400,000 people to drop their insurance and run the risk of a jail term if they later had their licenses suspended for failure to comply with the state’s mandatory insurance law and still continued to drive, said Robert Gnaizda of Public Advocates Inc., representing the minority coalition.

Insurance Department attorney Judith Mulroy said the department staff concurs with the minority coalition that implementing such a high rate would defeat the original purpose of the California Assigned Risk Plan, which is to serve as an insurer of last resort for those who cannot find coverage elsewhere. She said it would drive the cost of such coverage beyond the reach of many.

Mulroy assailed the Assigned Risk Governing Board, a group made up mostly of insurance company executives that administers the plan, for failing to come up with any creative solutions to deal with this problem.

She suggested that a low-lifeline rate be established, similar to that in telephone service. Unless such “fundamental changes” are instituted, she said, “a doubling of the rates is not justified.”

Insurance Commissioner Roxani Gillespie, who was present at the hearing, did not directly react to the staff suggestion. In an opening series of comments, the commissioner said the assigned risk system is “riddled with problems” that the governing board has done nothing about. “No one is at the helm of the plan,” she said.

But at the same time, she said, she feels obligated to represent the majority of the state’s policyholders, who through their regular policies are paying now to subsidize losses in the assigned risk plan. Attorneys for the insurers suggested Thursday that this subsidy may run as high as $75 per car this year.

Under the assigned risk system, insurers doing business in California are required to accept a quota of drivers who either cannot get insurance or who choose not to buy regular coverage. The quotas are linked to how much auto insurance business each company does in the state. If the companies lose money on these policies, then their other customers may be required to pay higher premiums to pay for the losses.

The insurers’ attorneys claimed Thursday that the statewide deficit on assigned risk coverage will amount to $600 million in 1989.

For several years, Gillespie, aware that pushing assigned risk rates too high would cause many motorists to do without insurance, has been holding these rates down in the urban areas. In Los Angeles, the result has been that assigned risk coverage is often less expensive than regular coverage. Gillespie has routinely cut way back on rate increase requests, and in the present case, delayed even hearing the request for more than six months.

All this has led both to a swelling of the numbers of assigned risk customers and of the insurers’ claimed losses on such customers. Meanwhile, a whole industry of brokerage firms that sell only assigned risk policies has been spawned. There have been allegations also of rampant fraud in assigned risk claims.

Both Gillespie and Gnaizda, the minority coalition attorney, accused the Assigned Risk Governing Board on Thursday of putting in for its 112% average rate increase (it would be 137% in Central Los Angeles) without any regard for the social ramifications. But Gnaizda put it more dramatically than Gillespie.

“This proposal comes from archaic actuarial charts, not from human hearts,” Gnaizda stated. “It is callously and socially irresponsible. It will wreak human havoc.”

And, he went on, the worst is yet to come. If actuarial projections are borne out, the insurers will be asking permission to charge $6,000 a year to Central Los Angeles drivers by 1994 and $16,000 by 1999, he declared.

If even the current rate increase is granted, “you will face a public revolt that will make Propositions 103 and 13 pale by comparison,” Gnaizda told the hearing. Proposition 103 was the landmark insurance initiative approved by the electorate last November. Proposition 13, the Jarvis property tax cut, was approved in 1978.

“Just say no,” Gnaizda urged Gillespie.

The insurers’ attorney, James R. Woods, by contrast, insisted that it is against state law to do anything but make the plan self-sufficient. He said, however, that the assigned risk board had held its rate increase request below what is now needed to make that happen.