February 19, 1998
Prop. 103 Enforcement Project
Consumers Union West Coast Office
Quackenbush Allows Insurers to Continue Setting Rates Without Standards
SANTA MONICA & SAN FRANCISCO, CA — Two California consumer groups today sent a letter to California Insurance Commissioner Chuck Quackenbush denouncing his decision to quash a study on excessive auto company rates and profits by a task force subcommittee he himself appointed.
The Proposition 103 Enforcement Project threatened to sue the Commissioner if he does not release the study, which evaluated excessive profit levels for auto insurance companies using existing Proposition 103 regulations approved by the California Supreme Court. The study was intended to assist the Commissioner in fulfilling his legal obligation to regulate rates for consumers. The California Department of Insurance (CDI) now announces that the study is “not necessary or proper.”
A previous study by Consumers Union in 1996 showed that auto rates in California were excessive by more than $800 million. The most recent data available from the National Association of Insurance Commissioners, whose estimates are considered conservative, reported average 1996 profits of 19.3 percent for California automobile insurers compared to the national average of 12.1 percent.
By refusing to complete the rate regulations, Quackenbush continues to shield insurance company profits and allows companies to set rates without standards. The Prop. 103 Enforcement Project and Consumers Union challenged this decision, and the Project has submitted a public records act request to release the study.
“When California voters passed Proposition 103, they wanted lower, fairer auto rates and they wanted the insurance commissioner to regulate those rates,” said Gina Calabrese, attorney with the Prop. 103 Enforcement Project. “Commissioner Quackenbush continues to dodge his duty to consumers, and instead protects the excessive profits of auto insurers. As long as insurers rake in excess profits, Quackenbush lines his pockets with their campaign contributions.”
“What is Commissioner Quackenbush hiding?” asked Judith Bell, director of the West Coast Regional Office of Consumers Union, nonprofit publisher of Consumer Reports. “We found company profits were excessive in 1996, and costs have been declining in the industry since then. Rates should be dramatically lower for California drivers. Without this study, Californians will never know the truth.”
Commissioner Quackenbush’s decision to torpedo the study follows three years of wrangling over rate regulations. Nearing the end of his term, he has yet to set standards for auto insurance rates and profits. Quackenbush appointed the Prior Approval Methodology Task Force with its Generic Factors Subcommittee in response to a Consumers Union request in 1996 that he complete rate regulations.
That subcommittee, comprised mostly of insurance industry representatives, completed its hearings and its preliminary work in July 1997. Its purpose was to evaluate the feasibility of using existing rate regulations promulgated under Proposition 103 to fulfill the Commissioner’s legal duty to protect consumers from excessive rates. The subcommittee agreed upon a set of reasonable rate components and numbers to use in assessing company profits and rates. It then directed CDI staff to complete a study running those numbers through Prop. 103’s regulatory formula to determine whether current profits were excessive.
Chief of the CDI Rate Regulation Division Maureen Mason now says that the CDI “has now determined that the requested compilation cannot be completed” and that “this information is not necessary or properÖ” The letter states that the CDI was unable to compile the data because of the “large number of ‘leaps of faith’ it was required to makeÖ” However, the letter does not identify any specific issue, nor did any CDI staff person every raise such problems with the subcommittee.
The suppression of the study comes after several months of delaying tactics by the Commissioner. When the pattern of delay became evident, the Prop. 103 Enforcement Project served Commissioner Quackenbush with a Public Records Act request for the results of the study. In the letter sent to the Commissioner today, the Project noted that his response is 44 days late and announced its intent to file suit if he does not respond by February 26.
“With insurers boasting of windfall profits, it’s likely that the Department’s profits study shows that rates are excessive,” Calabrese speculated. “This would be an embarrassment for Quackenbush, whose legal duty is to enforce Proposition 103’s provisions against excessive rates. He can run, but he can’t hide from evidence that he is ducking his duty to protect consumers. We will use all legal means available to obtain the results, educate the public, and achieve lower auto insurance rates for consumers.”
“Commissioner Quackenbush has again sabotaged an effort to set the ground rules for fair auto insurance rates,” Bell said. “Without this study and the work of this subcommittee, any new rate regulations by Commissioner Quackenbush are meaningless.”
[Reporter’s Note: For a copy of the joint letter to the CDI or CDI’s letters regarding the subcommittee, please call 415/431-6747 or 310/392-0522.]
The Proposition 103 Enforcement Project is the watchful eye over insurance prices and practices — core issues that affect the economy and pocketbooks of consumers and businesses alike. Using 103’s authority for consumer participation in insurance regulatory matters, our attorneys and experts successfully challenge unfair insurance premiums and practices.