Pressure for Insurance Reform Spreads Far From California : Auto coverage: Companies face fights in several states to roll back premiums or offer rebates. The firms are fighting back hard in the courts.
“It’s not only California now,” said Pete Ingham, general counsel for the huge State Farm company, in discussing the political surge for change and reform in auto insurance. The industry, he said, is under serious attack in several states.
In Pennsylvania, New Jersey, Georgia and Nevada, insurers have been under pressure, as in California, to give rate rollbacks or rebates. Other kinds of proposals to ease the consumer insurance burden are being considered elsewhere.
But, as in California, the companies are fighting hard in court--and in some places effectively--to prevent rate reductions. In some of the jurisdictions the actions taken against the industry in legislatures or by governors or regulators have been stayed indefinitely.
In others, such as Pennsylvania, regulators are attempting to implement lower rates, but the insurers are refusing to comply with deadlines, waiting for regulators to take legal action to attempt to force them to comply.
Perhaps the most far-reaching attempt at reform in recent months has come in Pennsylvania, where the Legislature at the urging of Gov. Robert Casey, a Democrat, adopted an optional no-fault law that was opposed by all three of the most powerful lobbies involved in the auto insurance issue--insurers, trial lawyers and medical practitioners.
It has been unusual for a state legislature to act against only one of these lobbies. To act against all three at once is virtually unheard of.
Under the Pennsylvania law, auto insurance rates were frozen at the level of last Dec. 1, and a reduction of 22% was set for this July 1 for drivers electing to purchase no-fault policies. For those retaining their liability policies and the right to sue and be sued after accidents, the reduction would be 10%. The reductions in both cases would be partially financed by limiting doctors’ fees for injury treatment for specific procedures to 110% of what Medicare would pay.
Insurers and the doctors have sought injunctions to prevent Pennsylvania from implementing the law. The insurers, in federal court, claimed inadequate cost savings and a deprivation of a fair rate of return; the doctors, in state court, claimed the state cannot lawfully use federal payment standards.
But so far, after several judicial rounds, the law stands, and there is no stay. The state Supreme Court recently reversed a stay ordered at lower court levels. Nonetheless, 13 of the top 20 auto insurance sellers in the state failed to comply with a regulation that they submit new, lower rating plans by May 1.
Pennsylvania Insurance Commissioner Constance Foster has said she is mystified at the industry’s opposition, because the industry has long lobbied for years for cost limits and no-fault features.
“In their wildest dreams, these are things they never thought they could get,” she said. “Now, they’re saying it’s not really going to save that much money.”
But the insurers claim that the probable savings simply do not match the amounts they are expected to give up.
In New Jersey, meanwhile, newly elected Democratic Gov. James Florio is locked in a bitter fight with the insurers over a bill he led through the Legislature that abolished the state’s Joint Underwriting Assn. That insurer-administered entity had incurred a $3-billion deficit while insuring about half of all New Jersey drivers who supposedly could not obtain coverage in the regular market.
As part of its abolition and the transfer of policyholders to regular insurance coverage, the bill required the companies to pay $1.4 billion of the debt. State officials contend the companies wasted that much money through inept management and false charges, and the bill banned them from passing along the required reimbursements to their regular customers. The reimbursements are supposed to come out of the companies’ surplus funds.
But Allstate Co. has sued to have the New Jersey law declared unconstitutional on grounds of an illicit deprivation of company assets, and other elements of the industry are supporting the lawsuit. They say the state and its taxpayers should pay off the debt.
The suit also seeks to enjoin Florio from trying to intimidate Allstate. After company suggestions that it might cease selling auto insurance in the state, the governor had threatened that in that event, it would be banned from selling all lines in New Jersey.
At a recent press conference, Florio said of Allstate, “They call themselves the good hands people. The question is which part of our anatomy do they have their good hands around?”
“We need an injunction against him personally,” said Floyd Abrams, an Allstate lawyer. He accused Florio of “treating this like a crusade” and of suggesting that anyone who disagreed with him was morally tainted.
In Nevada, insurers won a court stay against implementation of a 15% rate rollback. And in Georgia, a similar stay was imposed on a rate freeze. The Georgia insurance commissioner later announced he was abandoning efforts for now to institute the stay.
In Nevada, the rollback from July 1, 1988, levels was upheld on the federal district court level, but has been stayed while the U.S. 9th Circuit Court of Appeals reviews it on appeal from seven large carriers.
Teresa Rankin, a spokeswoman for the Nevada Insurance Department, said that, in effect, rates in Nevada, as in California, have been frozen, since “we’re not processing any rate increase.”
In a number of other states, regulators, under political pressure from policyholders irate at high rates, are seeking to squeeze insurance companies profits, disallow some company expenses and delay rate increases for long periods. One house of the Arizona Legislature voted a few days ago to repeal that state’s mandatory auto insurance requirement, because coverage had become unaffordable for many.
While the battle of rates goes on in California and other states, there are numerous reports that some companies, dissatisfied with their return on auto and health policies, are restricting their sales or abandoning some lines altogether.
Travelers, Aetna Life & Casualty, Cigna, Great Republic and the New Hampshire Insurance Group are among those who have recently announced plans for sales restrictions. Some companies are switching their emphasis to commercial lines, others are refusing to sell in areas where claims are high.
In Michigan, which years ago established a rule that rates could be no more than 45% higher in urban areas than rural ones, changes are under consideration to force companies to sell in the urban areas.
