Newly installed Insurance Commissioner John Garamendi on Tuesday struck down existing regulations for implementing Proposition 103 rollbacks and future rate increases, promising to set his own standards as quickly as possible.
Issuing 25 pages of proposed new regulations and calling for public hearings on them starting in mid-February, Garamendi left no doubt that he intends to be more stringent in limiting profits and overseeing company practices than his predecessor, Roxani Gillespie.
He also set new procedures for the hearings to reduce what he termed “filibustering” by lawyers for the insurers.
“We will rekindle the insurance reform light that the companies have tried to smother,” Garamendi declared.
At news conferences in Sacramento and Los Angeles, the new commissioner said he plans to give California policyholders the highest possible refunds of 1989 premiums. But he declined to say until the hearings are over what annual rate of return he would allow companies in setting rollback amounts.
Unlike Gillespie, who had promised early rulings on rollbacks and then never made them, Garamendi said he would not promise when his decisions would come, but only that he would make them as fast as he could.
Gillespie set an annual rate of return standard of 11.2%, meaning that any company earning less did not have to give rollbacks. And she set a range from 11.2% to 19%as a means of calculating the validity of new rate requests filed by companies.
In declining to give new figures now Garamendi apparently was seeking to protect himself against any legal argument by the insurers’ lawyers later that he was setting standards arbitrarily.
But Garamendi did give some indications as to how he plans to subject insurers to more stringent rules in setting both rollback amounts and future rates.
Garamendi also vowed to disallow excessive company overhead in calculating a company’s rate of return. He said that if a company was found to have expenses above the industry mean, they would not be counted.
The commissioner also said that income that a company earned by investing surplus funds beyond those needed to pay claims also would be disallowed in calculating rates of return.
Furthermore, in a statement that shocked some insurers, Garamendi said that his actuaries--not those of the companies--would estimate what the future company claims payments would be, and use these estimates to approve company rates.
Later, however, the commissioner acknowledged that so far he is having trouble finding seven new actuaries to hire to do such work.
Garamendi’s comments, and his critical tone, Tuesday drew the first negative statements from industry representatives.
Tom Conneely, president of the industry’s leading lobby in Sacramento, the Assn. of California Insurance Companies, said that any attempt by Garamendi to determine on his own company losses from claims paid would “go beyond his authority” and probably lead to a constitutional challenge.
“Besides, if his estimates were too low, he could have a whole bunch of insolvent companies on his hands,” Conneely said.
The industry spokesman also objected to Garamendi’s intention to apply new efficiency standards on company overhead. This, too, would raise constitutional questions, he said.
Garamendi said he expects legal challenges, and added that he thinks company lawyers may again try many of the delaying tactics that have hamstrung implementation of Proposition 103. He said he would impose unspecified sanctions against those abusing the system.