Insurance Commissioner Sets New Rules for Insurance Rates

State Insurance Commissioner Roxani Gillespie on Friday released new regulations on prior approval of auto and other insurance rates that would allow the companies to earn annual returns on equity ranging from 11.2% to 19%. Gillespie promised to begin hearings on allowing the new, probably higher, rates Aug. 8.

The rate of return projected in the regulations, which must be approved by the state Office of Administrative Law before they go into effect, could mean returns higher than the 11.2% standard Gillespie has said should be the criterion for Proposition 103 rebates of excessive 1989 premiums.

Spokesmen for Gillespie contended Friday that higher rates of return are merited because of the companies’ need to obtain capital and a state Supreme Court ruling suggesting that the commissioner set a range of figures and not a strict standard of new rates.

The effect, however, is likely to be higher company profits on auto and other insurance under the state’s new regulatory system of prior approval of rates. Particularly in auto insurance, most companies have not been making the kind of profits that Gillespie now has ruled permissible.

Even as Gillespie announced her first new rate hearings, affecting Fireman’s Fund, State Farm and Safeco, a coalition of consumer groups and Atty. Gen. John K. Van de Kamp’s office announced that they are challenging both her intent to start rate approval hearings Aug. 8 and her choice of a retired Superior Court judge, James Scott, to hear the matter.

Robert Gnaizda of Public Advocates Inc., representing the coalition of 15 minority and low-income groups, suggested that Scott should either remove himself from the case, or be removed by Gillespie, on grounds that as a “rent-a-judge,” he has a conflict of interest. Should he rule against the insurers, Gnaizda said, he would be hired as a judge less frequently in the future.

Meanwhile, Fred Woocher, a special counsel to Van de Kamp on insurance matters, said that he would argue in a Los Angeles Superior Court on Monday that it would be wrong to allow Gillespie to proceed to grant the insurers new, higher rates, at the same time she is blocked from deciding on the amount of Proposition 103 rebates.

Woocher added that any rate hearings that are held should allow due process to all parties, specifically affording consumer groups and the attorney general’s office a chance to obtain data on company profits before the hearings. This cannot be done by Aug. 8, he said.

However, Gillespie’s special counsel for Proposition 103 implementation, Karl Rubinstein, said Gillespie is determined that the hearings begin Aug. 8 and under Judge Scott.

In the past, Gillespie has been thwarted repeatedly in her attempts to implement various parts of Proposition 103, but usually the suits to prevent her from doing so have come from the insurers, not the consumers or the attorney general’s office.

In this case, however, the insurers are pleased with most of Gillespie’s regulations, which may open the way to higher profits, and so far they are not objecting to an early start of hearings.

One of Gillespie’s regulations that does annoy the insurers, however, would rule out the use of certain company expenditures in calculating rates of return.

For instance, Gillespie would not allow political contributions, lobbying expenses, charitable contributions, excessive executive compensation, payments of bad-faith judgments or fines and penalties, or institutional advertising to be used in the calculation.

These parts of the regulations, including the projected establishment of efficiency standards for companies, might be challenged later by company lawyers.