Gillespie Going to Court Over Freeze on Rate Increases

Insurance Commissioner Roxani Gillespie, concerned that scores of insurance companies are trying to use an ambiguous decision two weeks ago by a Los Angeles judge to circumvent her freeze on auto insurance rate increases, will go back into court today to try to get the decision clarified and the freeze strengthened.

Gillespie announced Thursday that she will challenge the Aetna insurance company’s attempt to implement a 9.8% rate increase for its 80,000 private passenger auto policyholders in California that the company says would become effective Nov. 30.

But this is a test case that could have a broad effect on many companies.

Attorneys representing the commissioner say that so far 51 companies, including some major carriers, have filed 122 notices of rate increases in an attempt to use the decision by Superior Court Judge Miriam A. Vogel to circumvent both the freeze and the Nov. 8 deadline set by Proposition 103. After that date, the proposition requires prior approval from Gillespie before any rate increase can be implemented.

Among the companies seeking to circumvent the freeze are State Farm, California’s largest insurance seller, and other sizable sellers such as 20th Century, Hartford, Safeco, and Aetna.

Gillespie said Thursday that “the Department of Insurance feels betrayed” by such filings, because last week many companies signed what she thought was a broad industry agreement to abide by the rate freeze pending the outcome of hearings scheduled to start next week on the implementation of Proposition 103.

In seeking clarification of Vogel’s order, however, Gillespie is taking a calculated risk, because Vogel--a conservative appointee of Gov. George Deukmejian--has sympathized with the insurance companies and has sharply criticized Proposition 103.

In her Oct. 10 order, Vogel--dealing with a challenge by the Farmers group of companies--left Gillespie’s rate freeze intact, but only definitely until the end of November. Gillespie had announced Oct. 2 that the freeze would possibly last six months.

Vogel declared that on Dec. 1, or a later date she may set after a Nov. 21 hearing, Farmers would be free to implement a 5.9% rate increase it had announced--subject to Gillespie’s review, as long as that increase had been announced before Nov. 8.

There was immediate disagreement between the parties on what Vogel’s decision meant. Gillespie said she has the power to strike down such an increase as Farmers’ the day it was implemented. But Farmers’ attorneys disagreed. They said Farmers would be free to raise its rates on the date eventually set by Vogel and that the review by Gillespie would have to follow due process, meaning it could take months of hearings and later be subject to court appeal.

Dana Brooks, an attorney for Gillespie, said Thursday that the 51 companies, all following the interpretation of Farmers’ attorneys, have rushed to take advantage of the perceived loophole.

Karl Rubinstein, another Gillespie attorney, said all the companies hope to follow Farmers lead, implementing rate increases and then fighting the process that might lead to their having to roll them back. The protracted hearings and court appeals would in effect negate Gillespie’s prior approval power on rate increases for many months, Rubinstein said.

He said Vogel will be asked to prevent this from happening.

Jason Wright, a spokesman for Aetna, typified industry concerns about prior approval. He said Thursday that his company fears that unless it circumvents the Nov. 8 deadline, it could be tied up for months of Insurance Department hearings, while the company loses money at the old rates.

The insurers are aware that Gillespie has now sat for more than eight months on an “assigned risk” rate increase request of 112.3% by the insurance industry, and they fear similar delays for all requested increases after Nov. 8.

In other insurance developments:

A coalition of consumer groups sent a letter to Gillespie proposing that she take strong steps to put consumer interests on the same plane as the insurance industry at the hearings that will begin next week, in part by sharply limiting the industry’s right to charge its legal fees to its customers. The industry, the letter charged, “is using consumer funds to seek rate increases.” Gillespie responded with a pledge to “do everything within our power to make sure consumers get fair representation.”

Gillespie issued an order of non-compliance against the Farmers group of companies, accusing it of discriminatory rate practices in violation of Proposition 103 by channeling youthful customers and adults who wish to buy only the minimum state-required insurance to a subsidiary that charges rates that are 40% higher. The company responded that it considers its rates policies fair. Farmers could have its license to do business suspended or revoked, but only after lengthy hearings. The complaint was originally brought to Gillespie by Frank Thomas, a Farmers agent who is planning to run for insurance commissioner next year.

Gillespie called for hearings in January on a proposed regulation that would institute checks to assure that people could not obtain “assigned risk” auto coverage unless they could show they had first been turned down by two regular insurance companies.