Gillespie Curtails ZIP Code Pricing on Car Insurance : Prop. 103: The commissioner says costs will be lowered for urban drivers, particularly in Los Angeles. Young men and single persons could also benefit.


Insurance Commissioner Roxani Gillespie on Tuesday struck down the use of sex and marital status in setting auto insurance rates in California, curtailed insurers' use of neighborhood-based pricing and said she will impose a cap pegged to the consumer price index on annual premium rate increases.

In issuing wide-ranging emergency regulations after a month of hearings, Gillespie said she believes the effect will be some decrease in auto insurance rates for many urban residents, particularly in Los Angeles, and a limited increase for rural and suburban residents. Young men and single persons could also benefit from lower rates.

Gillespie said she could give no exact figures. It will be up to each insurance company to submit a new rate structure within 90 days for her approval.

The commissioner's announcements were the latest of many steps to implement Proposition 103, the landmark insurance initiative passed narrowly by voters last year and fought strenuously by the insurance industry.

Still to be resolved is the key question of whether companies will be forced to give the 20% rate rollbacks mandated by the initiative. At her news conference here, Gillespie again expressed doubt that the 20% reductions will ever prove feasible for most companies.

The commissioner said Tuesday that she intends that the regulations will become permanent in March. She predicted that her actions will be challenged in court by the insurers, and said she will go into court herself on Dec. 18 for a legal decision upholding what she has done.

Initial reaction from insurers Tuesday was cautiously negative. A spokesman for one trade association, the Alliance of American Insurers, said he felt that some companies will sue to prevent the regulations from taking effect.

The insurers seemed particularly concerned by the limit on annual rate increases for all drivers except those with poor safety records. The cap would limit increases to the rate of inflation as reflected in the previous year's consumer price index.

The cap could hold allowable price increases in 1990 to under 5%, after the six-month freeze Gillespie imposed Oct. 2 on all auto rate increases is lifted. So far in 1989, consumer prices nationwide have risen at an annual rate of 4.6%.

Representatives of the state's two largest auto insurance sellers, State Farm and Farmers, said it was too early to say exactly what response their companies will have to the regulations.

Reaction Tuesday from consumer groups was more positive, although some said that Gillespie had not gone far enough to mandate an equalization of rates statewide.

Like most court and administrative decisions in the long struggle to implement Proposition 103, Gillespie's actions Tuesday were complex and subject to qualifications.

Many Factors Involved

The commissioner said, for instance, that she was "outlawing the use of simple territory or ZIP code" pricing--in other words, neighborhood pricing. But she quickly added that under her new regulations companies could use as many as nine different factors--such as a locality's population density, vehicle traffic density, accident frequency or litigation rates--to substitute for ZIP code pricing.

Gillespie said insurers would have to give the most weight to a driver's safety record, followed by miles driven and years of driving experience, as Proposition 103 mandates. But the other factors, when added up, could still have a great impact on a policyholder's rate.

Presumably, the new system of pricing would still result in a considerably higher rate for an urban driver than for a rural or suburban one, as is currently the case, although the differences probably would narrow somewhat.

Similarly, Gillespie was quick to add that insurers might find substitute factors in setting rates to compensate for the elimination of sex and marital status in pricing auto insurance.

She noted that because men often drive more miles annually than women, insurance companies' new rating plans might continue to charge men more than most women. In addition to Proposition 103, Gillespie cited the Unruh Civil Rights Act against discrimination as a basis for her decision to outlaw sex and marital factors.

Even the rate increase ceiling announced by Gillespie is subject to qualification in the regulations. If an insurer can demonstrate to the commissioner that its new rates would be confiscatory, falling below what would constitute a fair rate of return, then the company could charge a higher rate.

Reid McClaran, an attorney for Gillespie, said Tuesday that this does not provide a very big escape hatch. He characterized it more as a necessary legal defense mechanism for the emergency regulations. James Wheaton, an attorney for the Voter Revolt organization, the sponsors of Proposition 103, agreed.

Still, the tortuous history of Proposition 103 has demonstrated that when a loophole is opened, many companies rush to take advantage of it.

Gillespie said she will go before Superior Court Judge Miriam A. Vogel in Los Angeles on Dec. 18 to seek a ruling upholding the pricing system the commissioner laid down in the emergency regulations issued Tuesday.

She said she will tell the judge that the state Supreme Court protected the insurers with the fair rate of return standard when it upheld Proposition 103 with some changes last May 3, and that now is the time to protect consumers with a rate ceiling.

Vogel, however, has frequently questioned such broad-based rate limits. Wheaton, the Voter Revolt attorney, said Tuesday that he is trying to get a Sacramento court to remove all Proposition 103 implementation matters from Vogel's jurisdiction.

In another part of her regulations Tuesday, Gillespie also ordered all insurers to take steps--through advertising, placement of agents and setting up of toll-free 800 numbers--to implement the provision of Proposition 103 that requires them to accept any "good driver" who desires a policy. A good driver is defined as one with no more than a single minor traffic violation in a three-year period.

This action was meant to counteract the frequently used policy of companies to try to sell only in low accident-risk areas.

Gillespie, a Republican, who announced Monday that she will not run for state commissioner next year when the post becomes elective, again charged that Proposition 103 was a poorly drafted measure and said its rate rollback provision was "defective and promised more than the proponents could deliver."

Nonetheless, she has set a series of rollback hearings to determine which, if any, companies will be ordered to rebate part of the premiums collected this year. Such orders, if made, would be subject to legal appeal, as is virtually everything Gillespie does.

Proposition 103 supporters, led by the measure's author, Harvey Rosenfield, and his chosen candidate for insurance commissioner, Conway Collis, said Tuesday that Gillespie has taken a step forward with her regulations.

Consumers 'Suspicious'

But as Collis, a Democratic member of the State Board of Equalization, put it, "consumers will remain suspicious until they see how it works out." Both Rosenfield and Collis expressed gratification that the commissioner had used some of their ideas disclosed in a proposed regulation last week.

Television commentator Bill Press, another Democratic candidate, said he found "less than meets the eye" in Gillespie's regulations. "I think it's half a loaf at best," he said. "What she is doing is replacing one form of redlining discrimination with another." He said he agreed with yet another Democratic candidate, former Common Cause director Walter Zelman, that Gillespie ought to resign.

Robert Gnaizda, a lawyer representing a coalition of minority and low income groups, said he felt that Gillespie had made a start but had not resolved the issue of the affordability of insurance in urban areas.

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