Outgoing Insurance Commissioner Roxani Gillespie announced Friday she will end her 14-month-old freeze on auto insurance rates before leaving office Jan. 7 and grant increases to some companies, affecting millions of policyholders.
Gillespie said that many California drivers who have more than one minor traffic violation in the last three years would get rate increases ranging from 5% to 40%. Industry spokesmen said most would be at the top of that range.
The commissioner said that under company rating plans she will approve, good drivers with no more than one violation and no at-fault accidents in the last three years, often will get slight rate decreases.
But in some cases, she indicated, she will approve across-the-board increases for all drivers insured by certain companies. She did not name these companies, but spoke of approving 160 different applications for rate revisions.
The Gillespie announcement came in a vaguely written news release that named only three companies and spoke of unspecified “revisions” that she may make before issuing final orders. Her staff said she was unavailable for comment.
Insurance Commissioner-elect John Garamendi strongly criticized Gillespie’s announcement and raised the possibility that he would try to undo some of her rating decisions when he takes office next month.
“Today’s announcement by Commissioner Gillespie is more bad news for many California consumers,” Garamendi said. “It means rates will go up for many drivers based upon regulations which are so unreasonable that consumer groups boycotted the hearings at which they were (considered).”
Garamendi added that Gillespie “neither alerted me to her actions nor sought my input.
“Things will change when I take office on Jan. 7,” Garamendi concluded. “At that time, I will review all of Commissioner Gillespie’s rulings and take whatever actions are necessary to correct unfair regulations and unjustified rate increases.”
In her two-page news release Gillespie said:
“Once the requisite number of (rate) applications have been processed, which should be in the near future, the rate freeze that the commissioner has had in place for more than 14 months will be lifted for those applications which have been approved.”
Gillespie said that most of the estimated 4,000 applications for new rates she has received under provisions of Proposition 103 are revenue-neutral, meaning that for every dollar more that a bad driver pays a given company, its good drivers will pay a dollar less.
Since, however, most companies have far more good drivers than bad drivers, this works out to substantial increases for the bad drivers and only slight decreases for the good ones. For instance, State Farm, the state’s largest auto insurance seller, whose rate revisions Gillespie indicated she would approve, has a clientele that is at least 87% good drivers.
A State Farm spokesman has said that some of the company’s good drivers will get rate increases, depending on where they live.
Two other companies Gillespie said would be allowed to shuffle their rates are Safeco and Fireman’s Fund.
The commissioner said she had received 98 applications for net rate increases from companies. She said she has decided to approve 55 and to order that 20 be revised.
She named no companies on this list and gave no amounts, other than to say she had provided a list of all rate applications to outsiders who had asked for them.
The lists of applications show that a number of these companies have asked for general rate increases in the neighborhood of 25%.
Gillespie is required under Proposition 103, which was approved by voters in November, 1988, to hold public hearings on any rate increases in personal lines of auto, homeowner or many other types of insurance that exceed 7.5%, if a request is made by a member of the public.
No public hearings have been held on the 98 applications. A number of consumer organizations have declared in recent months that they are financially overwhelmed by the number of rate applications and do not have the resources to contest them. They have noted that the commissioner has the authority to call hearings on her own if she wishes.
Gillespie said in her announcement that the companies’ applications were being “reviewed” internally, often a less stringent examination process than a public hearing would entail.
Gillespie noted that litigation might still overturn the basis for her rating decisions, in which case, she said, it was possible that those ratepayers charged more in the months ahead would eventually receive refunds.