Auto Insurers Split on Rebate Issue : Prop. 103: Some of the largest sellers are ready to compromise on rollbacks. Other firms are suing to block hearings on regulation.
A split has developed among the big auto insurance companies on the Proposition 103 rollback issue, with some companies prepared to compromise with new Insurance Commissioner John Garamendi and pay rebates of 1989 premiums to customers.
Although Garamendi has not said how large a rebate he wants, some insurers believe he hopes for a return of 6% to 8% on auto, homeowner and other premiums, an amount that would send checks of $100 or more to millions of California policyholders.
The industry’s would-be compromisers hope to bargain him down. Some say they believe that Garamendi wants a rebate sizable enough to give him a strong political boost and avoid incurring the wrath of Proposition 103 author Harvey Rosenfield, who is calling for the full 20% rebate prescribed by the measure passed in 1988.
Industry sources say that such big sellers as Allstate, 20th Century and the Automobile Club of Southern California, as well as the industry’s biggest lobby in Sacramento, the Assn. of California Insurance Companies, belong to the group willing to compromise.
These parties declined to join State Farm, Farmers, USAA, Chubb, Travelers and 69 other companies this week in a lawsuit calling for the courts to stop Garamendi from holding hearings on adoption of new rollback regulations. The regulations are expected to give more back to California ratepayers than they would have gotten under standards set by former Commissioner Roxani Gillespie.
The split marks the first time in the tortuous 2 1/2-year struggle over implementation of Proposition 103 that a substantial number of companies have given a settlement priority over litigation and contention.
“We aren’t participating in the lawsuit,” Thomas F. Conneely, president of the insurers’ lobbying association, said. “In fact, only one of our member companies is. We recognize the issues being raised in the lawsuit as legitimate, but it’s our preference at this time to proceed with the hearing process.
“Some companies, if they think politically, might enter into a rollback compromise. There are companies willing to have that conversation with Garamendi.”
Robert Lapinski, a spokesman for Allstate, said: “What we want out there is dialogue. We want dialogue with a number of different parties--not only with the commissioner but with consumer groups, the Legislature and the general public. . . . We decided not to join the lawsuit because we want the dialogue to continue.”
This position has angered some of the companies that sued.
A lawyer for a number of the suing companies, who declined to be named, noted that Garamendi has publicly vowed to hold up rate increases for each company until it stops litigating and pays all rebates he may assess.
“John Garamendi and the politics of terror caused that group to back off (from joining the lawsuit),” the lawyer said. “Allstate has been talking to Garamendi. We delayed filing the suit for about a week, and we were prepared to hold back further, if something was happening. But we became convinced that the commissioner was simply trying to break off some of the big players and drive a wedge into the industry.”
State Farm general counsel Pete Ingham said his company, the biggest auto insurance seller in California, has concluded that it cannot reach a compromise with Garamendi.
Ingham, who met recently with the commissioner, said: “It became apparent to us as we talked about the specifics of the proposed rule that his goals regarding rollbacks didn’t coincide with our figures. We had a $50-million operating loss in California in 1989 and we just don’t think that calls for any rollback.”
Garamendi and his aides declined to discuss in detail rebate figures or strategies for a compromise.
But Michael Strumwasser, a special counsel to the commissioner, said that it has become evident there are “two or three strains within the companies. Some are more sensible than others. They figure, why anger the new commissioner when they’re going to have to deal with him for four years?
“On the other hand, some are entirely aggressive. Their new lawsuit would try to knock off his whole plan.”
The central point of the lawsuit is that the courts should hold that Gillespie’s rollback standards of last year constituted a final action, and that all Garamendi can do is apply them. A first hearing on the suit is set before Los Angeles Superior Court Judge Dzintra Janavs on April 3.
At the same time, some of the same companies trying to block Garamendi from setting his own standards have also brought a separate action trying to knock out the Gillespie standards.
Garamendi has called the actions hypocrisy and vowed to “do all that is within my power to prevail against this cynical attempt to stall their legal responsibility to pay fair and reasonable rollbacks.”
“It is understandable that the insurers would love nothing more than to keep the Gillespie regulations in place,” he said. “Under her regime, no company ever faced a final rollback order. Meanwhile, they have earned millions (in) interest income on the unpaid rollbacks.”
The commissioner Friday issued some modifications of his proposed regulations in a gesture to the companies before the hearings begin next week. One change would help preserve the present system of selling through independent agents. Aides said that private talks on modifications had been taking place with some insurers.
Attorney Kent Keller, speaking for the companies that have sued to prevent Garamendi from going ahead, suggested before the modifications were issued that the commissioner just “wants to maintain a patina of due process over the hearings when he already knows the results, what he is going to do.”
