New Insurance Rules Attacked by Garamendi : Law: The commissioner says three bills signed by Wilson fly in the face of Proposition 103 and will cost the public millions.

Gov. Pete Wilson signed into law three bills that Insurance Commissioner John Garamendi--a likely contender for Wilson’s job--said will cost California insurance customers hundreds of millions of dollars.

Proposition 103 author Harvey Rosenfield also attacked the legislation Tuesday, saying it significantly weakens that 1988 voter initiative by watering down the commissioner’s control over rates and relaxing antitrust standards designed to prevent insurance price fixing.

Garamendi said he is considering filing a lawsuit to block the legislation from taking effect Jan. 1, on grounds that it will illegally blunt the voters’ intent in passing Proposition 103.

“This is a clear display of the special-interest power of the insurance industry, which makes 40% of the political contributions to the Legislature and is a major contributor of Wilson’s,” Garamendi said in a telephone interview Tuesday.

However, Wilson’s insurance adviser, Marjorie M. Berte, denied that the legislation signed late Monday will harm consumers. In fact, she said, one of the bills will make it easier for people to make informed decisions in shopping for insurance.

The disagreements are typical of the polarized nature of debate over Proposition 103, which affects mainly auto and homeowner insurance. Ever since the initiative was approved in a David-versus-Goliath campaign, it has been mired in legal wrangling.

Most of the billions of dollars in premium rebates that Californians thought they were voting themselves have yet to materialize. Meanwhile, because Garamendi has refused to grant rate increases until the rebate checks go out, rates have largely remained frozen for four years.

One of the bills Wilson signed Monday is meant to unlock that freeze. Together with legislation passed a year ago, the bill (SB 871) requires the insurance commissioner to act on rate increase applications within 180 days for auto, homeowner and business policies, or they take effect automatically.

Rosenfield predicted the law will lead to such a flood of applications that Garamendi’s staff will be unable to scrutinize them all.

Another bill (SB 905) protects insurance agents from having to give back a portion of their commissions under Proposition 103.

As written, the initiative permitted insurance companies to recover a share of the commissions they paid on premiums that are being rolled back. Thus, if a company that pays 15% commissions was ordered to rebate $100 million to consumers, it could pay $85 million itself and collect the remaining $15 million from its agents.

Under the new law, insurers could not dun their agents for such excess commissions. Instead, the companies could treat that money as a legitimate expense, which would reduce their liability for rebates. The California Supreme Court has ruled that legitimate expenses must be taken into account in determining an insurer’s rebate liability.

Garamendi said the law will reduce his negotiating leverage with companies and may eventually cost consumers up to $300 million. Rosenfield put the cost to consumers at perhaps $625 million.

The third bill (AB 1086) extends the industry’s freedom to share information on losses, expenses and other data, which was severely restricted by Proposition 103. Rosenfield called the legislation a further erosion of Proposition 103. He said it will lead to reduced competition and price fixing.

Berte rejected that contention. She said the free circulation of data allows companies to standardize the way they structure their products so that consumers may compare “apples to apples” in choosing policies.