Suspicious Insurance Legislation

Assemblyman Tom Bane (D-Tarzana) claims that he did not intend to hand the insurance industry a financial windfall last year when he wrote a last-minute amendment into state legislation. But that’s been the effect of Bane’s action, because auto insurers want to use his bill to charge California drivers even higher rates than they already do.

Bane says his 1988 bill was actually designed to force auto insurance companies to rebate premiums to their customers if they made profits in excess of 5%. But the language of the bill is flawed. It states that the “Legislature has determined” that a reasonable rate of return for automobile insurance companies is “an after tax profit of 5% of earned premium.” Anyone with minimal knowledge of the insurance business knows insurance companies don’t make their profits on premiums. They make most of their money investing the premiums they collect, and Bane’s bill made no mention of investment income.

And the timing of the legislation is suspicious. It was rushed through the Legislature in its final days last August, when it was still uncertain whether or not voters would approve Proposition 103 and the other insurance-reform initiatives on last November’s general election ballot. Those are not the best conditions under which to be deciding a complex and controversial issue like insurance reform.

Whatever Bane’s intent, it is now clear that some insurers are thinking about exploiting this legal loophole unless the Legislature acts to stop them. At least one company, Allstate, has filed papers with the state Insurance Commissioner Roxanni Gillespie arguing that the Bane bill allows them to make profits of between 18% and 28% on automobile coverage. That attitude is not likely to sit well with California residents who already think auto insurance premiums are too high, and who are increasingly restive with Gillespie for enforcing Proposition 103 in ways that so far seem to favor the insurance industry.

Bane has introduced new legislation to clarify his 1988 measure, and it is pending before a state Senate committee chaired by Sen. Alan Robbins (D-North Hollywood). Bane, Robbins and everyone else in Sacramento had best clear up this mess before adjourning for 1989. If they don’t, voters may decide to vent some of the wrath they feel towards the insurance industry against those members of the Legislature who cater to it.