Farmers Says It Will Challenge Rate Freeze : Insurer to Seek Court Order, Raise Prices 5.9%

The Farmers group of companies, contesting Insurance Commissioner Roxani Gillespie’s six-month freeze on auto insurance rate increases, said Monday that it will go into Los Angeles Superior Court today to seek court action to block the freeze order.

Anticipating a ruling in the company’s favor, Farmers has already told both its agents and the state Insurance Department that it will go ahead and implement a 5.9% statewide rate increase on Nov. 1. A company spokesman, Jeff Beyer, did not say what the company will do if it loses in court.

Farmers has said it needs the increase from its regular customers to cover $100 million in projected losses under the assigned-risk system.

Move Opposed

Gillespie, contacted for comment, said she will fly to Los Angeles this morning with her special counsel for the implementation of Proposition 103, San Francisco attorney Karl Rubinstein, to oppose Farmers’ move against the freeze before Superior Court Judge Miriam A. Vogel.

Rubinstein branded Farmers’ action “irresponsible,” remarking: “It may be they’ve bitten off more than they can chew. Farmers has a duty to the people of this state not to further confuse the efforts to implement Proposition 103, and if they fail in that duty, the people of the state are going to react towards Farmers appropriately.”

He declined to elaborate on what he thought ordinary consumers might “appropriately” do, but he said the Insurance Department is determined to use every legal action at its disposal to enforce its freeze against rate increases.

Meanwhile, Rubinstein disclosed, and Gillespie confirmed, that the commissioner is ready to offer a deal to the insurance industry as a whole: If the big insurance companies agree not to challenge the freeze, she will hold up until the end of November any order telling the companies how to price auto insurance. The order of last week telling the companies to stop setting premiums based on where a driver lives would be canceled.

Rubinstein said that in return for this cancellation, the companies will have to agree first to make a good-faith effort to join with consumers groups and the Insurance Department during hearings beginning Oct. 30 to resolve major differences on how insurance should be priced.

Pricing Criteria

Proposition 103 states that the primary pricing criteria in the future should be, in order of importance, a driver’s safety record, the number of miles driven annually and a motorist’s years of driving experience. The commissioner is allowed to name other factors, such as where a driver lives, but they are not supposed to be given as much weight as the first three in setting prices.

Rubinstein said he and Gillespie realize that her order of last week--telling the companies to apply only the top three criteria, lowering their prices to urban dwellers but, under the freeze, not permitting them to raise any of their prices for anyone else--”put the companies in a real pinch.”

“We’re sympathetic to that,” he said, “and also to the fact that it would make little sense for the companies to send out new pricing notices now, only to have to send out others 30 days later, after the hearings are concluded and permanent criteria are set.

Deal Offered

“The commissioner will not move off from implementing her freeze, but she will, if they (the insurance companies) agree to work hard with her in the hearings, and commit themselves to the process--then she is willing under her power to approve interim rates to let the current rating system stay in effect until Nov. 30.”

Pete Ingham, general counsel of the State Farm company, confirmed in an interview Monday that talks looking forward to such a compromise interim solution have been going on since last week, and he said that pending their outcome, State Farm had agreed to hold off on any court action either challenging the freeze or the decision doing away with territorial ratings.

Rubinstein said he and Gillespie are grateful to State Farm, Calfarm and other companies for taking “a responsible attitude,” as contrasted, he said, with Farmers’ “irresponsible” attitude.

No Invitation

But Farmers spokesman Beyer said his company had not been invited into the negotiations.

“We are not a part of these talks,” Beyer said. “We would be delighted for them to contact us.”

But, he said, Farmers believes that its 5.9% rate increase, first announced Sept. 25, is correct, regardless of any freeze order by the commissioner.

“The real basis for our position is our fiduciary responsibility to manage the Farmers company and its financial stability in the interest of our policyholders,” he said. “We have deep concern over the projected $100-million underwriting losses from the assigned-risk plan.”

Under the assigned-risk plan, drivers who are unable or unwilling to buy auto insurance in the regular market are assigned to insurance companies under a quota system based on how much auto insurance business a firm does in California.

112.3% Increase Sought

The Board of Governors of the assigned-risk system, made up mainly of executives of big insurance companies, asked Gillespie last February for a 112.3% increase for such drivers to stem assigned-risk losses that the board claimed were running into hundreds of millions of dollars.

But the increase has been challenged in a drawn-out hearing process by a coalition of consumer and minority groups on grounds that it would result in many policyholders paying more for auto insurance than they do for food, and Gillespie has said she will approve no increase until the assigned-risk plan is substantially restructured.

In the meantime, companies such as Farmers have grown increasingly impatient. When she imposed her freeze last week, Gillespie said other companies had told that her they would follow Farmers’ rate increase with a series of similarly reasoned rate hikes before Nov. 8, the date Gillespie gains formal authority under Proposition 103 to approve or disapprove all rate hikes.

Harvey Rosenfield, author of Proposition 103 and chairman of the Voter Revolt organization, said Monday that “Farmers’ brazen defiance of the freeze will quickly be imitated by every other insurance company in the state unless the Department of Insurance immediately and forcefully acts to protect consumers. . . . These rates should have been frozen months ago.”

Rosenfield added that he might be receptive to the deal Rubinstein and Gillespie proposed making with the companies for suspending their territorial ratings order, as long as the freeze were fully maintained.