Consumer Group Alleges New Rules Will Raise Insurance Rates in Calif.

By | May 2, 2008

A consumer group this week accused California Insurance Commissioner Steve Poizner of adopting emergency regulations that would lead to higher rates for auto, homeowner and most other types of insurance coverage.

In a sternly worded letter, Consumer Watchdog founder Harvey Rosenfield said Poizner had violated campaign promises by adopting regulations that were “an outrageous giveaway to the insurance industry.”

Rosenfield said the regulations would allow insurers to boost profit margins, increase anticipated claims costs and buy more of what the industry refers to as reinsurance — all of which could add to consumer bills.

“If these hastily adopted amendments go into effect, the result will be unnecessary insurance premium increases for California consumers and businesses, particularly for motorists and homeowners, and excessive profits for insurance companies,” Rosenfield wrote.

Rosenfield is the author of Proposition 103, the insurance rate regulation measure approved by California voters in 1988.

Darrel Ng, a spokesman for the Republican insurance commissioner, said Rosenfield’s analysis was incorrect.

“We appreciate Harvey’s passion, but we believe he is dead wrong on this issue,” Ng said.

Rosenfield said the regulations would lead to higher rates in several ways, including by authorizing a special 2 percent increase in insurers’ lawful rate of return.

Another rate-boosting change would allow insurers to increase the projected amount of future claim payments they could pass on to current policyholders.

Rosenfield also complained that the regulations would allow insurers to buy “excessive amounts” of reinsurance and pass those costs on to insurance buyers. Reinsurance is used by insurance companies to cover claims and sell more policies than they have the reserves to cover, Rosenfield said.

Ng said that if the regulations had been in effect earlier, a 15.9 percent cut ordered last month by Poizner in Allstate auto insurance rates would have been greater. Rosenfield disagreed, saying the regulations would have allowed Allstate to collect at least another $32 million in premiums a year.

The regulations would not retroactively affect the Allstate case, Ng said.

Lt. Gov. John Garamendi, a Democrat who was Poizner’s predecessor as insurance commissioner, also criticized the regulations. He said they would give insurers “the opportunity to rip off consumers.”

The regulations need approval from the state Office of Administrative Law to take effect.

State Sen. Mike Machado, the chairman of the Senate Banking, Finance and Insurance Committee, said Poizner’s classifying them as emergency regulations would not allow for adequate public review.

“Rather than being clarifying, they appear to make the process more ambiguous and give insurers more opportunity to game the system,” Machado said in an interview.

“I wish he would reconsider and go through an open rate-setting process to allow input by all parties so these regulations can be adjusted in a balanced manner that is transparent and open.”

Ng said Poizner needed to adopt emergency regulations to cover a flood of rate adjustment filings that auto insurers have to make by July 14. They are doing so to respond to regulations that require them to base their rates mainly on customers’ driving records rather than on where they live.

Rosenfield said his group could sue to try to overturn the regulations if they are approved by the Office of Administrative Law, but the chances of winning in court might be slim.

“It’s not a slam dunk,” he said. “The courts really do not like to overturn the discretion and judgment of state agencies.”

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