11.2% Insurer Profit Standard Could Rise

Times Staff Writer

The chief of the state Insurance Department’s Rate Enforcement Bureau told a legislative hearing Monday that the 11.2% annual profit standard that Insurance Commissioner Roxani Gillespie has set for the insurance industry is only a “tentative” figure and may be revised upward.

“It’s simply our opening position,” Reid McClaran told the hearing in Los Angeles chaired by state Sen. Alan Robbins (D-Van Nuys), head of the Senate’s Insurance Committee. “We understand the companies will ask for more and in some cases much more. We’ll have to see what our administrative law judges say at the rate hearings and the commissioner will then reach a final decision.”

On Aug. 1, at a San Francisco news conference, Gillespie had stated her adoption of an 11.2% standard in much more categorical terms, calling that percentage a “fair rate of return” for the companies based on the average rate for all U.S. property casualty insurers during the years 1973 through 1987.

Gillespie, who had been scheduled to appear at Monday’s hearing to face down her persistent critics, Voter Revolt chairman Harvey Rosenfield and state Board of Equalization member Conway Collis, did not show up. Deputy Commissioner Charlene Mathias told Robbins that the commissioner had suffered a back injury.


May Seek Subpoena

Robbins said he felt Gillespie might be ducking the hearing because she did not want to answer questions. He said he would give the commissioner four alternative days to agree to appear and, in lieu of her agreement, would seek a legislative subpoena.

The hearing in Gillespie’s absence was marked by scathing criticism of her alleged lack of diligence in implementing Proposition 103 by Rosenfield and Collis, sharp questioning by Robbins and replies by Mathias, McClaran and other department officials that fueled their anger.

Asked, for example, when Gillespie would go forward with rate rollback hearings for 219 companies that she had put on a “slow track” hearing process, the department officials not only refused to set any dates but said it is possible in some cases that no hearings will ever be held.


McClaran said that for many of these companies, including State Farm Mutual, the state’s largest seller of auto and homeowner insurance, Gillespie is still waiting for information she has requested from them. When she receives the information, McClaran said, she could decide to exempt them from the 20% rate rollback called for by Proposition 103 without any hearing. Department critics say a hearing is required by law.

At another point, Milo Pearson, chief of the department’s Rate Regulation Division, disclosed under questioning that the department has quietly abandoned its challenge to a 9.6% average rate increase that State Farm implemented earlier this year. He said the challenge had been rendered moot by the state Supreme Court ruling in May upholding Proposition 103.

Robbins, meanwhile, questioned whether Gillespie will run for insurance commissioner when the post becomes elective next year as she has indicated. He said he heard that someone in the Deukmejian Administration has told her in recent weeks that there will be another preferred Republican candidate, perhaps state Sen. John Doolittle (R-Citrus Heights).

Asked through her press secretary about Robbins’ suggestion, Gillespie referred the matter to Kevin Brett, Gov. George Deukmejian’s press secretary.

Brett called Robbins’ comments “political fantasy,” remarking that ever since Deukmejian ran for governor in 1982 against much of the Republican Establishment, “the governor has been very resistant to kingmaking. He doesn’t enjoy it, and he doesn’t engage in it. This case is no exception.”