Insurers, consumers clash over Garamendi plans; state regulator's proposals keep controversy roiling.

Insurers, consumers clash over Garamendi plans

Insurers and insurance agents criticized California Insurance Commissioner John Garamendi's proposed measures to implement Proposition 103, while consumer organizations applauded the proposals, at a downtown Los Angeles hearing last week.

Both insurers and insurance agents accused the commissioner - who presided over the hearings and frequently challenged assertions by insurance industry representatives - of ignoring the need to reduce accident legal settlements and of imposing standards which will reduce insurers' flexibility and drive agents out of business.

The hearings are "a gross waste of the public's time and money," said Herb Jones, president of the Alliance of Los Angeles Inner City Brokers and Agents. "Why rehash old subjects? The efficiency standards discussed today don't do anything. As long as the same tort system is in place, you won't have a solution."

A second hearing was held in San Francisco on Feb. 14, a day after the Los Angeles hearing.

Jones and other agents are upset that Garamendi's proposal lumps agents' commissions into calculations of insurers' efficiency standards. They contend that would lead to pressure to eliminate California's 5,000 independent property/casualty insurance agents and replace them with direct mail operations to reduce costs.

One of Garamendi's legal counsel team said that if agents comprise additional costs for insurers, then agents may have to go.

"Agents' services should result in savings (to insurers) elsewhere," said Special Counsel Fredric Woocher. "Agencies should be held to the same level of efficiency as insurers."

Jones charged that the elimination of agents would result in a lower level of service to uneducated and Spanish-speaking insurance customers.

Agents' associations called for different efficiency standards for independent agents, in-house agents and direct mail operations at companies.

Garamendi's regulations would establish a range within which all insurers' profit levels would be set, penalize companies for charging customers for overhead expenses in excess of the industry average, replace industry claims estimates with those made by Insurance Department actuaries, include all insurer income in profit calculations and eliminate profit on excess retained capital by the companies.

Insurers expressed concerns that the profit range and other proposals would force them to limit service and possibly leave risky product lines, an argument similar to that many insurers made before Proposition 103 passed.

"The purpose (of the regulations) is to promote competitiveness, but the effect is the opposite," said Richard Wiebe, director of public affairs of the American Insurance Association, a trade group of 240 property and casualty insurers.

"The rigid standards imposed by these regulations will lead to generic regulations," he said. "It could force companies to adhere to a rigid rate of return and lead to a capital flow (by insurance companies) to less volatile lines."

Among the types of coverage that he said might be affected are those for ambulances and trucks, day care centers, research and development and company officers and directors.

Others expressed similar concerns. "We are trying to promote regulations which recognize the diversity of the marketplace," said Tom Aceituno, general counsel of the Association of California Insurance Companies, a property/casualty lobby with 30 member companies. " . . . To say that above a standard is inefficient - we don't agree with that. We want a range of efficiencies."

A spokeswoman for Allstate Insurance, the third-largest auto insurer and the second-biggest home insurer in California, said the company might not be able to offer some services under the new rules.

Woocher said that the fundamentals of all the lines were the same for different lines and that Wiebe's and other industry analysts' concerns were unwarranted.

A Department of Insurance actuary added that there is plenty of fat to be cut from insurers and said that insurance companies have averaged profit margins of at least 27.6 percent in recent years.

Former insurance commissioner Roxani Gillespie okayed a rate of return of 11.2 percent to 19 percent for the approval of future rates.

Garamendi's proposals were praised by Proposition 103 author Harvey Rosenfield. "It's what we've been waiting for two years," he said. "It will force the industry to become more competitive. . . . There are no loopholes. That's why they (insurers) are flopping like fish out of water about this."

Rosenfield also called on insurers to maintain records on who is entitled to the 1989 rate rollback, and for the Insurance Department to crack down on insurers which violate the new regulations.

A law firm representing minority and low-income interests called for Garamendi to prevent discrimination by insurers against those groups.

Woocher said that the company hopes to have a final blueprint for the profit range and other proposed regulations by March 15 and actual figures to insert into the equations by the end of March.

A State Farm Mutual Automobile Insurance Co. lawyer said that the regulations would create a bureaucratic maze that would result in further delays in implementing the 20 percent rate rollback, because the creation of an industrywide database would require collecting a paper mountain of rate factors.

The Department said that no rate increases for insurance companies will be approved until the rollbacks are granted.

Insurers also claimed that the proposed regulations suffer from legal flaws which conflict with other elements mandated by Proposition 103, California antitrust laws and previous judicial decisions.