Assigned-Risk Rates Must Rise, Judge Tells Gillespie

A Los Angeles judge ruled Friday that Insurance Commissioner Roxani Gillespie has no authority to hold down assigned-risk auto insurance rates to make coverage affordable to low-income groups and directed her to approve an average 112.3% statewide rate increase request that she had rejected.

Superior Court Judge Miriam A. Vogel said she realized that her decision would “gravely affect” poor minorities in central Los Angeles, where the rate increase would be 137%, to as high as $2,187 a year for the state minimum liability insurance. But, she said, only the Legislature can authorize subsidizing their insurance costs.

Vogel, however, said her decision will be automatically stayed if Gillespie appeals the ruling.

Two hours later, the commissioner’s special attorney for Proposition 103 implementation, Karl Rubinstein, said the decision will be appealed.

Rubinstein said, “The commissioner believes that she’s the only one practically available to fill the gap between what the poor can pay and what the insurers want to charge them.”

Vogel on Friday was resuming a series of hearings in insurance rate cases after higher courts had rejected a motion of bias filed against her by Gillespie’s attorneys. They had expressed the opinion that she favors the insurance companies too much on rate matters.

In a six-page opinion, Vogel said she has concluded that “affordability is simply not a legally proper consideration” in setting assigned-risk rates.

For years, Gillespie has held down the rates charged under this system, and in some urban areas, it is now cheaper than regular insurance. The commissioner said that unless she did this, hundreds of thousands of people would abandon auto insurance, leading to the collapse of the state’s mandatory insurance law.

Protesting companies, however, say they lost $600 million on assigned-risk claims last year, and these costs have to be passed on to their regular customers.

The assigned-risk governing board, dominated by insurers, recently sued to compel Gillespie to grant last year’s rate increase request, which would bring assigned risk rates for about 1 million policyholders from an average $700 to $1,488. Rates would be far higher than that in urban areas.

Vogel rejected Gillespie’s arguments that Gillespie has authority to help the poor by keeping assigned-risk rates low.

“The social and political problems attendant to the cost of insurance cannot be resolved by this court or by the insurance commissioner,” she wrote. “If there is to be some form of subsidized insurance for the poor, the method for providing such coverage and the determination of the source of the funding for the subsidy must be made by the Legislature.

“Insurance companies are not public utilities and, at least absent legislative action, they cannot be compelled to underwrite a program of the kind contemplated by the commissioner,” she added.

In so writing, the judge was also apparently rejecting Gillespie’s April 10 call to the assigned-risk board to create a two-tier rate system under which low-income families would be charged less for coverage than high-income ones.

Both Gillespie and leading consumer groups are anxious to implement such a program because they have little faith that the Legislature, under influence from the powerful insurance and trial lawyer lobbies to oppose reform, will act to make insurance affordable.