State Senate Asks for Scrutiny of Quake Premiums : Insurance: Hayden voices concern over secretive calculation methods. Commissioner says he will try to secure Proposition 103 rebates by July.


A state Senate panel Wednesday urged California Insurance Commissioner Chuck Quackenbush to take a closer look at the secretive process insurers use to set earthquake policy rates.

The Jan. 17, 1994, Northridge earthquake sparked a rush of requests from insurance companies seeking to boost premiums anywhere from 37% to 200%.

To calculate the increases, insurers hire computer modeling firms that measure the risk posed by various factors such as soil conditions, underground fault locations, the likelihood of temblors and construction standards.

Then, citing competitive concerns, the firms keep their formulas secret from the public--and from the insurance companies--in a practice that is coming under increasing scrutiny.

"This is going to determine earthquake policies for many, many years," said state Sen. Tom Hayden (D-Santa Monica). "What's the degree to which these firms can insist on secrecy?"

Quackenbush said his staff is examining the computer modeling techniques to determine whether the state needs to step in with new regulations.

"All the old modeling techniques were thrown out the window with the thrust fault of the Northridge quake," Quackenbush said, noting that insurers fell wildly short of accurately predicting the cost of damage from the temblor.

In providing an overview of his goals for the Senate Insurance Committee, Quackenbush went on to talk about the direction his administration was headed. The commissioner said that, among other things, he will try to secure Proposition 103 auto-insurance rebates by July and get insurers to offer more policies in the inner city.

Challenging Quackenbush's record so far were consumer advocates, who charged that the Republican commissioner had gotten off to a "rocky start" since his January inauguration.

As far as consumer groups are concerned, Quackenbush entered the job with a credibility deficit after funding his 1994 candidacy with $2.3 million in insurance industry contributions.

Harvey Rosenfield of the Proposition 103 Enforcement Project said Quackenbush has done little to reverse that perception since assuming his post.

"He has managed in three months in office to do more damage to his credibility," Rosenfield said. "He has truly shot himself in the foot so many times that he's trying to crawl around looking for cover."

As evidence, Rosenfield cited Quackenbush's awkward and tight-lipped response to committee members' questions about a 20th Century Insurance Co. case.

At 20th Century's request, Quackenbush had reduced by as much as 60% the amount of Proposition 103 auto-insurance rebates the company must pay customers.

Because the ruling sparked a lawsuit by Rosenfield's group, Quackenbush tersely refused to answer Hayden's questions about how he arrived at his decision.

"I have been advised by my counsel not to comment on 20th Century because it is now subject to litigation," Quackenbush said in a testy response to Hayden. "That's it, senator. That's the way it's going to be."

Jamie Court of the Proposition 103 group pointed out that, in December, 20th Century sent Quackenbush a $5,000 political contribution to help him retire his campaign debt.

Rick Dinon, 20th Century's senior vice president for public relations, said the company was exercising its democratic rights in making a contribution he characterized as modest.

"We are a corporate citizen and a participant in the political process," Dinon said. "And we believe we have every right to do so."

Dinon said the company also gave $45,000 in February, 1994, to the Assn. of California Insurance Cos. Political Action Committee and $25,000 so far this year to another trade group, the Personal Insurance Federation.

The larger amount was given, Dinon said, before 20th Century discovered how bad its losses would be from the Northridge quake, causing it to seek a special rules waiver from the state Department of Insurance so it could leave the earthquake insurance market.

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