Backers of Prop. 103 File Suit on Gillespie

Insurance reform activists and allies filed suit in Sacramento Superior Court on Thursday, charging state Insurance Commissioner Roxani Gillespie with ignoring basic provisions of Proposition 103 and demanding that she take immediate steps to implement the voter-approved measure.

Voter Revolt, headed by Proposition 103 author Harvey Rosenfield, was joined in the suit by the Proposition 103 Intervention Team, the Center for Public Interest Law of the University of San Diego and the Los Angeles Chapter of the NAACP.

“Unfortunately we have been forced to take legal action because the insurance commissioner has repeatedly proven she is more interested in protecting insurance company profits than implementing the will of the people,” said a written statement by Conway Collis, chairman of the Proposition 103 Intervention Team.

Ironically, the suit was filed the day after Gillespie announced a significant concession to critics by promising to set hearings this year on the rates charged by four major California insurance companies. Gillespie had previously drawn heated criticism for putting three of the firms--State Farm Mutual, the Farmers group and the Automobile Club of Southern California--on an unscheduled “slow track” to regulation that could have taken a decade.

Speaking to reporters during a recess of a hearing in Los Angeles into rates charged by the Allstate Insurance Co., Gillespie called the suit “spurious” and accused her critics of shirking the work of the hearing. “These people are basically opting out of the process while the rest of us are doing the work,” she said.

Collis replied that his organization was represented at the hearing while he was announcing the suit to the news media and that he and Rosenfield will continue to be involved.

The suit demands that Gillespie hold immediate hearings for more than 200 insurance companies that she had placed on the so-called “slow track” to regulation--a concession that Gillespie essentially had made the day before at the same time she promised hearings into four major firms.

The suit also demands that Gillespie:

- Schedule hearings for about 180 other firms that she has exempted from rollbacks called for in the proposition passed by voters last November.

- Adopt regulations to set automobile insurance rates for individuals that do not include geographical areas as criteria, a practice critics say has resulted in higher rates for urban areas and even higher rates for residents of inner-city areas such as South-Central Los Angeles.

- Establish a standard to judge acceptable profit margins for companies undergoing hearings into rates.

Gillespie maintained that the landmark Allstate hearing which began Wednesday and was continued indefinitely Thursday, will provide a profitability standard and other criteria by which other insurance firms can be judged.

First of 17 Firms

Allstate is only the first of about 17 firms that Gillespie said will receive individual hearings on their rates before the end of the year. She also promises to hold a mass hearing this year for 257 smaller firms.

But, judging by the progress of the Allstate hearing, some observers are doubtful that such tasks can be accomplished this year.

The Allstate hearing was scheduled to last only two days, but so far only one witness has been heard--an economist called by the company to defend its rates--and an official of the firm said 13 other witnesses may be called to testify when the hearing resumes.

The Allstate hearing marks the first time an insurance company in California has been required to justify its rates, and the proceedings frequently have moved slowly through uncharted areas such as the question of what constitutes a fair return on investment.

Proposition 103 mandated that insurance companies roll back their rates 20% from 1987 levels, but the state Supreme Court subsequently ruled that the firms have a right to fair profits.

Sets ‘Benchmark’

Commissioner Gillespie and the state Department of Insurance later announced that data indicates that insurance companies in California have been earning a return on equity of 11.2% annually over the last 15 years. That number was set as a “benchmark”--but not necessarily a floor or ceiling--by which rates are to be judged at the hearings.

Using the 11.2% figure last month, Gillespie tentatively ordered Allstate to roll back its premiums by 6%, an overall reduction of $85.7 million statewide.

Allstate is seeking approval of its present rate of return, set last year, which the company says is 13%.

But consumer advocates, joined by the state attorney general’s office, maintain that Allstate makes far more than 13% on equity and that the Department of Insurance’s methods of analyzing such companies finances are inadequate to determine real profits.