Guidelines Awaited on Insurance Profits : Prop. 103: Four months of hearings are drawing to an end. Uncertainty over rates has left consumer groups and companies trading acrimonious charges.

More than four months of state Insurance Department hearings into what constitutes a “fair rate of return” for insurance companies are coming to a close here this week in an atmosphere of recrimination and uncertainty.

Out of the hearings are expected to come, by the end of the month, a set of profit guidelines to be recommended by Administrative Hearing Judge William Fernandez to Insurance Commissioner Roxani Gillespie. Once reviewed and perhaps changed by Gillespie, these will be issued as standards for state approval of future auto, homeowners and various other insurance rates in the state.

These standards also would be used for determining what, if any, rate rollbacks and premium rebates Gillespie may finally order pursuant to provisions of Proposition 103. The rollbacks have been delayed for 17 months already while the standards were debated and litigated.

In general, Gillespie and the Insurance Department staff have been suggesting at the hearings that a fair rate of annual return for the companies should range, depending on circumstances, from 11.2% to 15%. The companies, by contrast, have been arguing for a 16% to 21% annual rate of return.

There are a host of subsidiary issues, such as which company expenses, like political contributions, might be disallowed in making the calculations, and whether the profits should be in each line of insurance, or averaged out among all lines each company sells.

The recriminations have come mainly from representatives of consumer organizations who charge that the hearings have been unbalanced in favor of the industry. They noted that many of their requests for data on company finances and sales practices were rejected by the hearing judge.

Meanwhile, the uncertainty has come from insurers over what conclusions Gillespie may reach, and what the consequences of her decisions might be.

There is little doubt that if Gillespie sets profit guidelines far below what the companies think they should be, the companies will sue to prevent her standards from taking effect.

In short, the result of these hearings--which have cost the companies, and indirectly their California ratepayers, millions of dollars--may be a new round of the litigation that has so far stymied all efforts to implement Proposition 103.

There also are questions of whether the elected insurance commissioner, who will take office in January, may want to set his own standards, and whether the work done at the hearings and the conclusions reached by Gillespie will be discarded.

Asked whether they felt the hearings will prove to have been useful, various parties were cautious.

Kent Keller, an attorney for Travelers and other companies, said, “I would hope we’re getting near the end” in setting standards for the state’s new system of approving rates. But on the rollbacks, he said, “individual companies that are ordered to refund millions of dollars probably will go to court.”

But Bob Gnaizda of Public Advocates Inc., representing a coalition of minority and low-income groups, asserted that the hearings will prove to be a waste of time, unless Gillespie disregards Judge Fernandez’s recommendations and strikes out on her own to develop a more pro-consumer tack than the hearings took.

The consumer groups directly represented--Latino Issues Forum, Voter Revolt and the Consumers Union in particular--are in a sour mood because the compensation from insurers for consumer attorney expenses that they had been promised by Gillespie at the start of the hearings has not been forthcoming.

Most of the big companies have refused to pay it, and the issue of financing a consumer presence at the hearing is being litigated.

On Tuesday, one consumer representative after another rose to support motions charging that Fernandez had been biased against them and the minority and low-income groups and asking that evidence and arguments from companies that had refused to compensate the consumer attorneys for their efforts be ignored in the conclusions that are reached. Particular anger was expressed that the judge had refused to admit evidence on “redlining” against minorities.

After the consumer attorneys had spoken, and insurer attorneys had rebutted them, Fernandez angrily left the bench without his coat, rolled up his shirt sleeves and, striding to the desks occupied by the consumer representatives, castigated them.

Pointing out that he is descended from several minority groups himself, the judge said he could not tolerate such unfair accusations. He said he sympathizes with the plight of minority members who are charged a great deal for insurance or unable to buy it. But he said that as a judge he will follow the law.