Six-Month Freeze on Auto Insurance Rates Ordered : Gillespie Forestalls Increases

SAN FRANCISCO —  State Insurance Commissioner Roxani Gillespie today ordered automobile insurance rates frozen for six months while future rate limits are being determined under the Proposition 103 initiative.

Gillespie announced the freeze after Farmers Insurance Group had notified her department last week that it intended to raise its auto rates 5.9% on Nov. 1. She said other insurers had indicated they had similar plans.

“I am trying to have some stability while all of this (rate regulation) is being determined,” the commissioner, an appointee of Gov. George Deukmejian, told reporters.

Allowed to Reduce Rates

Insurers will be allowed to reduce auto rates but not to increase them before April 2 unless overall standards for rate regulation are worked out before then, Gillespie said.

Gillespie’s action also rules out a plan announced last week by State Farm Insurance to raise rates of problem drivers while lowering those of good drivers.

It also forestalls implementation of a Proposition 103 rating plan downgrading reliance on where a driver lives. Gillespie said that plan would have increased insurance rates for 70% of the drivers living in rural and suburban areas to subsidize prices for 30% of the drivers living in urban areas.

Gillespie’s decision could be challenged in court.

She contended her authority to order an immediate rate freeze was implied in a state Supreme Court ruling upholding most of Proposition 103, the insurance regulation initiative passed by state voters last November.

Under most previous interpretations of the ruling, Gillespie’s authority to veto insurance rate increases was not to take effect until Nov. 8, a week after the scheduled Farmers increase.

Among the many provisions of the consumer-sponsored initiative was a requirement for insurers to submit all future rate increase requests to Gillespie’s department for approval after Nov. 8. The requirement covers auto, property and liability insurance, but not life and health insurance.

Interim Rates

Insurers would not be allowed to put the requested rates into effect until the department decided whether they were excessive. While rate requests were being considered, the commissioner could order interim rates.

Gillespie said today that her authority over interim rates also allowed her to impose an immediate rate freeze.

However, the state Supreme Court specified in its Proposition 103 ruling that insurers could continue to set their own rates before Nov. 8, subject to possible state-ordered refunds later. The court said an immediate 20% rate rollback required by the initiative could not be applied to any insurer who would be denied a “fair rate of return,” a standard to be determined by the department.

Gillespie said today her standards for rate approval would be determined at industrywide hearings beginning Oct. 30 in nearby San Bruno, with completion scheduled by the end of the year.

She said those hearings should also decide implementation of Proposition 103’s provisions reducing the weight insurers can give to geographical evidence in setting rates and requiring “good drivers” to get 20% discounts.