SACRAMENTO, CA — State Insurance Commissioner Steve Poizner is under fire from his predecessor and a consumer group for proposing regulation changes that they say would increase rates for automobile, homeowner and most other kinds of coverage by millions of dollars.
The proposed rules would alter how
insurers calculate the rates they can charge, allow them to cut rates
without facing a full review from the Department of Insurance and allow
the commissioner to phase in big rate changes.
Opponents say
the rules would allow companies to "cook their books" to justify rate
hikes, make smaller rate cuts than they should and keep excessive rates
in place longer than justified.
"Insurance rates will go
through the roof at a time when we can hardly afford to deregulate
another industry in the financial sector," said Harvey Rosenfield,
founder of the Consumer Watchdog group and the author of Proposition
103, a rate-regulation initiative approved by voters in 1988.
Lt.
Gov. John Garamendi, Poizner’s predecessor as commissioner, said
Poizner’s actions "threaten to gut the consumer agency we worked so
hard to rebuild after the Quackenbush scandal," a reference to former
Commissioner Chuck Quackenbush, a Republican who was forced from office
in 2000 amid corruption allegations.
A spokesman for Poizner,
Darrel Ng, said Thursday that Poizner’s proposals were mainly intended
to make it easier for insurers to lower rates.
"The current system is filled with red tape and other obstacles that discourage insurance companies from lowering rates as they would like," he said.
Ng said the changes would also allow companies to accurately reflect their costs when they apply for rate adjustments.
"Right
now in the formula, companies having wildly different cost structures
are given credit for having the same costs," he said. "This proposal
would allow low-cost operators to pass on that lower cost. On the flip
side, those who choose a higher level of service would have that
reflected in the rates also."
The department held an informal
hearing on the changes on Dec. 12. Ng said Poizner would consider
comments from consumer advocates and insurers before he issues final
rules, which need approval from the Office of Administrative Law.
"If
a group or person believes that the regulations are drafted in a way
that would allow (unjustified rate hikes), we welcome their input to
amend the language," Ng said.
The changes deal with six aspects of rate-setting regulated by the department.
One
amendment would give the commissioner up to two years to phase in rate
changes of 15 percent or more instead of ordering that they take effect
immediately.
In an analysis of Poizner’s proposals, Consumer
Watchdog said phasing in rate decreases would let insurers continue to
charge rates that the commissioner had found were excessive. On the
other hand, allowing companies to charge rates that are too low could
cause some companies to become insolvent, the Santa Monica-based group
said.
The department, in an explanation of the potential
amendments, said phasing in rate changes would avoid hardships for
consumers facing large rate increases and prevent market instability
when insurers propose big cuts.
Another change would allow
insurers to cut their rates without full review by the department, a
step that Rosenfield said would let insurers avoid bigger rate cuts the
commissioner could order.
"What they are proposing is like
saying to a crook, ‘You can steal 50 cents from me as long as you don’t
steal a dollar from me,’" he said.
The department acknowledged
that change could lead to insurers charging rates that are higher than
they would be if they were subject to a full department rate review.
"The
trade-off that makes this acceptable is that under the present system
it is largely left to the discretion of insurers whether or not to seek
a rate reduction in the first place," the department said in its
explanation.
If insurers fear that a full review will require a
bigger rate cut, they won’t request a reduction at all, the department
added.
Ng said insurers would still face a full rate review every three years.
Rosenfield
said Poizner can review a company’s rates whenever he wants but there’s
no requirement that they be checked every three years.
"If they won’t enforce the law now, why will Poizner enforce the law three years from now?" he asked.
Other
amendments would alter factors insurers use in calculating allowable
rates, changes Rosenfield contended would enable companies to "cook
their books."
The pending amendments come on the heels of a
series of changes Poizner issued in May. Rosenfield and Garamendi say
those regulations have raised auto insurance rates by $26 million and
triggered applications for another $305.2 million in increases to auto
and homeowner coverage.
Ng said homeowner and auto insurance
rates have dropped about $1.4 billion since Poizner took office in
2007. Rosenfield attributes those cuts to regulations adopted under
Garamendi.
Poizner is proposing to scrap one of his May
changes, which allowed him to adjust an insurer’s after-tax rate of
return as much as 2 percent based on financial market conditions.
The
department said it had been unable to find "an objective and realistic
method" to do that. It asked for suggestions that would be
"administratively feasible" without leaving insurers with a rate of
return so low it stopped them from acquiring capital.
The debate over Poizner’s handling of insurance rates is likely to become a major issue if he runs for governor in 2010.
Garamendi could end up as his opponent.
Garamendi,
a Democrat, has already announced his candidacy for governor. Poizner,
a Republican, has formed an exploratory committee to consider running.
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On the Net:
Department of Insurance: http://www.insurance.ca.gov
Consumer Watchdog: http://www.consumerwatchdog.org
