ANALYSIS : Insurance War Fades, but New Issues Evolving


At a recent gathering of insurance underwriters in San Francisco, Allstate counsel Michael McCabe had a welcome message for the hundreds of industry loyalists present.

"The era of unfettered insurance company bashing has come to an end," McCabe said. "The next stage of the debate over insurance issues here in California and elsewhere in the nation will be characterized by dialogue."

There are signs McCabe has a point. The furor engendered by the 1988 "war of insurance initiatives" is fading and demands for rollbacks approved by the voters that year in Proposition 103 are getting less attention.

But insurance issues continue to stir emotions in California, and likely impending developments--rate hikes, further restrictions of insurance availability, inauguration of a new insurance commissioner--may ignite new controversy, not only in auto insurance but in health insurance.

Since the Allstate executive spoke two weeks ago, no less a basher of the companies than Proposition 103 author Harvey Rosenfield seemed to validate what he said.

Rosenfield has announced that his Voter Revolt organization has failed for the second time to get enough petition signatures to put on the 1992 ballot an initiative that would lead to the creation of a nonprofit state auto insurance company and the ouster of private auto insurers from California.

He said his financially hard-pressed group simply does not have the money to gather the signatures.

Perhaps of more immediate importance, Rosenfield disclosed that he has encouraged Insurance Commissioner-elect John Garamendi to try to negotiate compromise solutions on auto insurance directly with the insurers.

Rosenfield acknowledged such talks would have to be private.

Rosenfield and his longtime mentor, consumer advocate Ralph Nader, had just a few days before sent a lengthy report to Garamendi, summarizing the status of key elements of Proposition 103 and urging him to notify the companies that they will get no rate increases in California until they stop litigation against the measure.

Rosenfield said in an interview that in a subsequent meeting he assured Garamendi of a cooperative attitude on his and Nader's part while Garamendi tries to settle matters with the companies.

Garamendi has declared that he is eager to pursue such talks and then perhaps seek legislative solutions to the state's insurance problems. He already has met frequently with ranking representatives of all three groups most interested in the insurance issues--insurers, trial lawyers and consumers--seeking whatever common ground there is.

Does this mean the fire is out in California's insurance crisis after a two-year fight? Not exactly, say a number of those close to the situation, although the rhetoric may have been replaced by a desire to cooperate.

Still, impending developments could disturb whatever tranquility exists, experts say.

"I don't think the industry is out of trouble," said Jeff Shelton, chief staff consultant to the state Assembly's insurance committee. "I've asked a number of persons in recent weeks: 'Has public opinion changed? Has the anger toward the companies dissipated?' And all said no."

Shelton said he believes the comparative quiet over auto insurance issues will last only until the first new rate increases. There was word last week that some readjustment of rates, which will entail big increases for some drivers, may be in the works for January.

State Farm officials, expecting approval early next month from outgoing Insurance Commissioner Roxani Gillespie, confirmed that their company intends to raise rates by more than a third for the 13%, or more than 400,000, of their 3.3 million policyholders who are considered "bad" drivers--those with two or more citations or one or more at-fault accidents in the last three years.

While the officials said most of their "good" drivers, 87% of their customers, will get slight decreases under the new pricing plan, the prospect of such a shake-up nettled some State Farm agents.

"We will not get notes of appreciation from those getting the slight decreases," said one agent, who asked not to be named. "But we will hear bloody screams from those getting the increases."

Another aspect of the State Farm readjustments would be to restrict the ability of the "bad" or "problem" drivers, and in some cases younger drivers, to purchase new policies.

If, as expected, the departing Gillespie authorizes other companies to follow the new sales policies of State Farm, many more of these drivers may find themselves able to buy auto insurance only through the assigned risk system, which offers only liability coverage and not the collision and comprehensive coverage that many finance companies require new car buyers to carry.

Some agents warn that such rule changes, which they regard as being highly likely to win Gillespie's backing, could so restrict the availability of insurance that the new car market will be depressed. They say that bad drivers who are unable to buy collision or comprehensive coverage will usually be able to afford only older, used cars.

Gillespie last week declined to say what she would do. Her special counsel for Proposition 103 implementation, Karl Rubinstein, hinted strongly that the commissioner would act favorably on State Farm's plan as well as similar ones of other companies.

Gillespie did not confide her plans to Garamendi when the two met recently, leaving the commissioner-elect saying, uneasily, that he could not formulate his own policies until he knew "what kind of playing field" he would be left.

Other developments may also roil the waters in auto or health insurance:

* On Jan. 1, stringent enforcement provisions of the state's mandatory auto insurance law are being allowed to lapse as a result of legislative inaction. No longer will police who stop motorists over violations be required to demand proof of insurance. Consequently, no longer will those unable to show such proof have their licenses suspended until they buy it.

Although the law will remain on the books requiring drivers to submit proof of insurance when they have accidents, there is still expected to be a considerable surge in the numbers of uninsured motorists. The surge eventually will bring increases in uninsured motorist premiums for those continuing to buy coverage.

* Thousands of Californians have been sent scurrying to buy from unlicensed and unregulated out-of-state carriers because of restrictions approved earlier this year on the ability of good drivers to buy assigned risk coverage and an 85% average statewide increase in assigned risk rates authorized by Gillespie.

A leading insurance legal expert, Douglas Hallett, recently sued Gillespie for stricter enforcement of rules limiting sales by out-of-state firms, contending that many such carriers will default on their obligations.

* Recent hearings into health insurance conducted by Assemblyman Burt Margolin (D-Los Angeles) have demonstrated, as have numerous published and televised reports in recent months, that health insurers increasingly are cutting off coverage, or raising the prices for it astronomically, especially for people with individual or small group policies who become sick and make costly claims. Industry attempts to confine affordable health insurance mainly to healthy persons is engendering resentment from the growing number of persons who either cannot buy it or cannot afford the costly premiums.

During his campaign and in recent days, Garamendi has stressed his willingness to seek compromise solutions to such insurance problems. He also indicated, under certain circumstances, a willingness to pursue radical solutions.

For instance, Garamendi came out during the campaign in favor of "community ratings" in health insurance. This would mean selling health coverage to everyone within certain wide regions of the state at the same price, no matter what their health or the size of their claims.

The industry, moving the other way toward cost-based coverage or no coverage for the very sick, is expected to resist such proposals.

Garamendi has also said that should the companies be unwilling or unable to provide either minimal auto or health coverage to everyone who wants it, he would favor legislation that would set up a state company to provide such coverage.

"The Legislature did that last year in earthquake insurance," the commissioner-elect recently pointed out. "I have 90 days to set up a state company that will provide at least $15,000 coverage for every homeowner to be financed by a surcharge on their homeowners policies. This could be a precedent for the state moving to provide other kinds of minimal coverage."

The period of "unfettered insurance company bashing" referred to by McCabe of Allstate thus may be over. But there are indications that major reform proposals may lie ahead.

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