C alifornia drivers might think John Garamendi, the state's insurance commissioner , is the central figure in the fight over whether auto insurers should pay Proposition 103 rebates. But sharing center stage with Garamendi is Louis W. Foster, 79, the founder and chairman of 20th Century Industries and its main unit, 20th Century Insurance.
Foster started 20th Century in 1958 with $273,000 and became a pioneer. His Woodland Hills-based company marketed auto insurance by phone and mail--doing away with agents--and insured only good drivers in California.
In return, he offered relatively low prices. The result: 20th Century earned $103.5 million last year on revenue of $906.8 million, and has more than 1 million auto and home policies outstanding.
Now 20th Century is the test case in Garamendi's legal fight to get insurers to pay the rebates to policyholders. The industry has challenged the insurance-reform provision ever since its passage in late-1988, charging among other things that it's an illegal confiscation of their assets.
A handful of insurers, such as Mercury General Corp. in Los Angeles, agreed to pay the rebates. But about 80 insurers, including State Farm and Allstate, have fought the issue in court.
That fight now moves to state Superior Court in Los Angeles. In November, 20th Century and Garamendi will argue over whether Garamendi has the legal authority to order the rebates as proposed. The outcome is expected to help determine how much, if any, the other insurers will have to pay under Prop. 103.
Garamendi, who thrives on pressing his case in public, asserted last May that 20th Century owes more than $100 million in rebates and interest costs. Garamendi is levying a 10% annual int e rest charge on the insurers for as long as they refuse to pay. He also once called 20th Century "an insurance outlaw" for fighting Prop. 103.
Foster, still feisty despite turning 80 next March, says Garamendi is penalizing his company for its efficiency, although 20th Century's own advertising prominently uses the Insurance Department's survey of different insurers' rates to tout 20th Century's prices. Here is what Foster had to say in a recent interview.
Q: Why do you think 20th Century became the Prop. 103 test case?
A: 20th Century has been known for a long time as the most efficient company in California. Mr. Garamendi and his associates must have felt that if 20th Century is going to have to pay back rebates, the rest of it would be easy.
Q: Do you think that the few other insurers that paid the refunds--such as Mercury General and the Auto Club--undermined your case?
A: I don't think anybody could undermine us. I think we've got a solid, solid company that will stand the test.
Q: Are you going to fight the Prop. 103 case all the way to the end?
A: You bet.
Q: Not going to pay?
Q: Not going to settle?
Q: Are you the one making these decisions in the end?
A: Anybody who knows Lou Foster would understand, and I've been in the insurance business . . . from 1936 until now, that it's pretty hard for me not to want to be the leader a little bit. But I'm also very conscious of the fact that my responsibilities today are far fewer than they were years ago.
Q: But has there been any disagreement among 20th Century's top executives about the company's strategy?
A s 20th Century pursues its case in court, Garamendi keeps criticizing the insurance industry in public. Last week, in a speech to the Sacramento local of the Independent Insurance Agents and Brokers of California, Garamendi pledged "to see to it that each policyholder gets the full measure of his or her rollback under the law."
Q: How do your policyholders feel about your stance on Prop. 103?
A: I don't think the policyholders have any argument at all.
Q: You believe the policyholders are behind you?
A: Oh, 100%. Why wouldn't they be? There isn't one policyholder in 20th Century that didn't save money. Not one. He bought for only one reason, not because Lou Foster ran it, he bought it because the price was right.
Q: How do you feel about Garamendi as commissioner?
A: I try not to think much about it. It's hard for me to believe that a man . . . and I use the word advisedly, could prostitute himself enough to make the statements he makes knowing full well that he wants the notoriety, good or bad. He wants everybody in California to know who he is and what he does. He has other plans.
You know, I go crazy sitting up here and having that guy shout all those figures out there and so forth. Tell him that I go to bed at 8:30 and I get a good night's rest, so he's not bothering me.
G aramendi calculated 20th Century's proposed rebate using a formula that, among other things, includes a maximum 10% annual rate of return on investment for the insurer. 20th Century's return on investment, as calculated by the Insurance Department, was 25% last year. The ratio is roughly equivalent to a company's return on stockholders' equity--its profit divided by its equity.
Q: What's wrong with a 10% or 11% rate of return?
A: We strongly feel that his formulas should start with prices and not with profits. Whatever rate of return we developed should be the acceptable way to do it. I can't stress enough what America has found out, that with insurance in particular, buying direct from the factory turns out to be pretty profitable for both of us.
Q: The fact is, Prop. 103 still passed and people are angry at the price of their auto insurance. How do we alleviate that general unhappiness?
A: First of all, it did pass by one percentage point. Secondly, there were 50 of the 58 counties that voted against it. Lastly, Los Angeles specifically was the place (where it passed). It was a mistake. There isn't anybody smart enough to sit in a room and decide how insurance should be sold. There's no formula you can follow, you've got to find it out for yourself.
I am a little disappointed that our mayor (Tom Bradley) endorsed the proposition, because I think he could have been the difference, but that's water over the dam. That one percentage point has caused more agony and more expense. God, there's been a lot of money wasted on this project.
Q: Why does 20th Century have in reserve only about one-third of the $100 million or so Garamendi says you have to rebate?
A: We got together with our outside auditors, our actuaries . . . and it was our determination that our net loss after everything is cleared away would be something in the neighborhood of $35 million. It's that simple. (Foster added that the sum is not a concession that 20th Century owes its policyholders any money. It's simply there in case of an "adverse ruling" by the courts, he said.)
F oster, who was paid $504,000 by 20th Century last year, also controls 9% of its stock, which makes his holdings worth about $132 million. Although that's a minority stake, it's no secret that some investors in recent years have bought the stock as a takeover play, figuring that 20th Century will be a target after Foster dies.
Q: What do you think will happen to your stock after you die?
A: Oh gosh. I wouldn't have the slightest idea.
Q: Are you worried about the company being acquired after you're gone?
A: No. How could I worry about it? I don't know. I'll be very honest with you. Not one soul has ever spoken one word to me about it.
Q: Nobody has approached you about buying the company?
A: No sir. And if you think I'm kidding you, I put my hand over my heart that I'm not.
Q: So there's no need to arrange a friendly acquisition before you leave?
A: A friendly acquisition? I would walk away from it. Money is not worth a nickel when you come right down to it. It's your own happiness that's important. I'm working because I like to work, not because I need more money.
Right now I'm waiting for Nov. 30. That's when the (Prop. 103) case is going to be heard (in Superior Court). Then I'm waiting for what happens after that. Because I think . . . that we'll have to go to the (California) Supreme Court. Unfortunately.
20th Century Industries at a Glance
20th Century Industries is the holding company for 20th Century Insurance, an auto and home insurer founded in 1958. The Woodland Hills-based company, which now has more than 1 million policies outstanding, specializes in underwriting coverage only for good drivers in California. 20th Century also markets its insurance by mail or telephone, thereby eliminating the need for agents.