Industry-Drafted Proposals Will Lead to Higher Insurance Rates
Insurance Commissioner Steve Poizner has quietly adopted insurance industry proposals to weaken the rate regulations that led to last week’s $250 million reduction in Allstate’s rates and over $61.8 billion in savings since the passage of the 1988 insurance reform Proposition103. The new rules, posted last night on the Department of Insurance web site, drew an angry response from Harvey Rosenfield, author of the sweeping insurance reform measure and founder of Consumer Watchdog, in a letter to Poizner today.
“Your proposals are an outrageous giveaway to the insurance industry, and… the result will be unnecessary insurance premium increases for Californian consumers and businesses – particularly for motorists and homeowners – and excessive profits for insurance companies,” Rosenfield wrote in a lengthy letter to Poizner delivered today. And “by declaring an ‘emergency,’ you have deprived California consumers of their right to carefully scrutinize the changes you are adopting at the behest of the industry and hold a public debate on them.”
The letter can be downloaded here.
By designating the changes as an “emergency,” Poizner is seeking to implement the new rules in a matter of weeks. There has been no public hearing on several of his proposed changes.
“Mr. Poizner pledged to enforce these key consumer protections to keep rates low by limiting the excessive profits and expenses of insurance companies,” said Rosenfield. “These changes to the Proposition 103 regulations will hit people right in their wallets at a time when we are already paying through the nose for fuel and food. The last thing our families and economy need is the kind of insurance rate increases they’ve seen in other states.”
“It is particularly appalling that the Commissioner is trying to ramrod these changes through without the full public scrutiny and debate that is required by the law,” Rosenfield added.
Rate Regulations Have Saved Californians $ Billions – $250 Million Last Week
The changes proposed by Poizner, elected in 2006, will undermine a system that led to a $250 million rate reduction for Allstate customers, confirmed last week in a court challenge by Allstate, and made California “the top-performing state in keeping rates down and providing comprehensive consumer protections,” according to a report issued last week by the Consumer Federation of America.
Under Proposition 103, approved by voters in 1988, insurance companies that want to change their rates must first open their books and show they are complying with rate regulations that limit their profits and expenses to fair levels before the Commissioner can approve any changes. The Proposition 103 rules were first put into place by Insurance Commissioner John Garamendi in 1991, and delivered $1.4 billion in refund checks for auto, home and business insurance. The regulations were strengthened in 2006, after two years of study and numerous public hearings, to further reduce rates as part of Garamendi’s plan to enforce a separate Prop 103 requirement that motorists premiums be based on their driving record rather than zip code. The 2006 changes made the regulations easier to apply consistently, and prevented insurance companies from manipulating financial data to obtain unjustified rate increases.
Commissioner Reneges On Campaign Pledge
When running for Commissioner, Poizner, a Silicon Valley Republican, pledged not to interfere with the Proposition 103 rate regulations issued by Garamendi. In October, 2006, he stated:
“Proposition 103 requires a clear and unambiguous formula for prior review and approval of insurance rates. Currently consumers and insurers are working with the Department to finalize amendments to the formula. I support these efforts and, if needed, I will work to complete the task of providing specific parameters for rate approvals in the future. These rules are necessary to provide clear and unambiguous standards that properly and fairly implement the mandate of the voters that rates not be excessive, inadequate or unfairly discriminatory.”
The changes announced last night are virtually identical to changes proposed by insurers and rejected as anti-consumer by Commissioner Garamendi in 2006. They apply to all forms of insurance in California except health and workers compensation, and are the culmination of months of insurance company pressure on Poizner to weaken state regulation of their rates.
Commissioner Poizner held a single public “workshop” on April 7 to discuss changes in the regulations. Other than representatives of Consumer Watchdog, who objected vigorously, only insurance company lawyers and lobbyists attended. Last night’s version of the regulations contains changes that were never discussed, but which were advocated by the industry.
The changes will:
• Allow insurers to increase their rates in order to earn profits far in excess of what is justified under Proposition 103.
• Permit insurers to game the regulatory system by inflating the projected amount of payments of future claims they can pass through to current policyholders.
• Allow insurers to buy unregulated “reinsurance” and then pass all such expenses on to policyholders, while denying consumers the right to challenge the cost of the reinsurance or any conflicts of interest or kickbacks.
New Rules Might Have Negated New Allstate Reduction
Last week, a Sacramento Superior Court refused to block a 15.9%, $250 million rate reduction in Allstate’s auto rates after an inquiry begun in 2006 by Commissioner Garamendi under the Prop 103 Rate Regulations. Allstate had argued it could not afford to reduce rates more than 8.4%. Commissioner Poizner subsequently ordered the rate decrease, and in a news release issued this morning, Commissioner Poizner claims he wants no further delays. But Consumer Watchdog said that if Poizner’s new regulations governed the Allstate case, the company would not have been required to make the full reduction it was required to make.
The revised regulations are subject to five days of public comment and then may be transmitted to the Office of Administrative Law, a state agency that is required to approve the rules. OAL reports to the Governor and has close ties to former insurance industry lobbyists inside the Schwarzenegger and Poizner Administrations. The regulations will take effect immediately upon approval by OAL.
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Consumer Watchdog is a nonpartisan, nonprofit organization.
