State OKs 20th Century’s Auto Coverage Rate Hike : Insurer: Quake-related losses will not excuse Prop. 103 rebate debt. Some of payment is to aid the Oakland area.

Insurance Commissioner John Garamendi on Wednesday approved a controversial 6% increase in auto insurance rates for earthquake-battered 20th Century Industries’ insurance units, 20th Century Insurance Co. and 21st Century Casualty Co.

The rate hike will add $49 a year to the average premium for 20th Century’s 1.15 million auto policyholders. The change is effective immediately, but for practical purposes it will not be enacted until early October, a 20th Century spokesman said.

The increase is designed to generate an additional $56 million a year in revenues, some of which is meant to bolster the Woodland Hills-based company’s surplus fund, or cushion against losses, which has been diminished to pay claims from the Northridge earthquake of Jan. 17. The 6% rate increase will drop to 3% as soon as the company’s surplus is equal to a third of annual premiums--a level regulators consider financially secure. Currently, the reserve amounts to less than one-fifth of annual premium payments.

Garamendi also affirmed Wednesday that, despite 20th Century’s weakness, he intends to collect the full $119 million in rebates owed to policyholders under the Proposition 103 insurance rate rollback law. Garamendi’s 1991 rebate order was upheld unanimously by the state Supreme Court on Aug. 18. “The amount of the rebate is not negotiable,” Garamendi said in a statement, “but, as part of our financial discussions with the company, we are considering different payment plans for the company to pay its obligation.”

In an unusual part of the settlement announced Wednesday among 20th Century, Garamendi and two consumer groups that intervened in the rate filing, 20th Century agreed to help support economic development in the Oakland area by depositing $1 million of its surplus in banks there, and by donating $50,000 to nonprofit community activities.

Proposition 103, passed by a ballot initiative in 1988, strengthened the power of consumer organizations to intervene on the public’s behalf at hearings about insurance rates.

The Personal Insurance Federation of California, a trade organization representing large insurance companies, attacked that part of the settlement Wednesday, saying that it sets a dangerous precedent.

“Every rate filing is now up for some sort of extortive action by any--quote--consumer activist--close quote--who wants to come in the door,” federation spokesman Dave Fountain said. He added: “The result is that it’s going to slow down the process and add costs for the policyholder.”

Selwyn Whitehead, president of the Oakland-based Economic Empowerment Foundation, one of the intervening groups, defended the bank deposits and cash contribution as a “nominal token of good faith” from 20th Century, which also promised to expand its marketing in urban areas outside Los Angeles.

Proposition 103 author Harvey Rosenfield criticized the settlement for another reason. Since part of the rate hike will amount to auto policyholders making a “forced investment” to prop up 20th Century’s quake-ravaged reserves, the policyholders ought to get their money back with interest after the company’s finances improve, Rosenfield said.

Garamendi, in a telephone interview Wednesday, said: “Proposition 103 specifically states that we (regulators) must take a company’s solvency into consideration in setting rates, so we did.”

In its latest revised estimate, released last week, 20th Century said it faces $815 million in gross claims costs related to the Northridge quake. The reduction of the company’s surplus from $582 million at the end of 1993 to less than $150 million raises questions about its ability to survive without a major infusion of equity or sale of the company.