State Insurance Department Rebuts ‘Flawed’ Criticism

The state Department of Insurance has issued a 35-page rebuttal to charges by the Consumers Union that the state agency is “toothless” in regulating the insurance industry. The department asserts that it is making “tremendous progress.”

“We are not a collection of faceless bureaucrats who will meekly accept unfair, unearned criticism aimed at discrediting our regulatory efforts,” said the rebuttal, drafted by departmental aides and edited by the agency’s press officer.

It was made public Tuesday along with a letter to Harry Snyder, West Coast director of the Consumers Union, from Insurance Commissioner Roxani Gillespie. The letter expressed disappointment that the group had criticized her agency and called the report, issued last month, “factually flawed and totally unprofessional.”

Rebuttal’s Points

In San Francisco, a Consumers Union spokesman defended the report, saying the group stands by its charges.

Among the points raised by the Insurance Department rebuttal:

- Although it is true that direct distribution to the public of its auto insurance price comparisons has been minimal, the comparisons received widespread coverage in the news media and thus got extensive public notice.

- The Consumers Union was inaccurate in its assertion that the department does not publicize loss ratios, expense data and earnings by company. Anyone interested in these can obtain them at departmental offices.

- Criticism that the department “jawbones” insurers rather than fining them or taking other punitive action is unjust when the “jawboning” often succeeds in bringing about necessary corrections, and the Consumers Union has made an “irresponsible and reckless misstatement of the facts” when it claims that the department never takes formal action against violators.

“Records of the department contain thousands of public files disclosing formal and public action taken against insurance agents and insurance companies for committing wrongful acts and other violations of the California Insurance Code,” the rebuttal said.

“During 1986 alone, the department revoked 132 licenses, restricted 44 licenses, suspended six licenses and issued miscellaneous orders including monetary penalties on 28 licenses,” it noted.

In some areas, the rebuttal acknowledged problems.

Responding to Consumers Union criticism that the department’s public complaint telephones often were busy or went unanswered, the rebuttal said the department was having problems with its new 800-number lines during the period described.

“One of the problems was that a number of incoming telephone lines were not connected to our phone system,” the rebuttal said. “This meant that, at random, callers could be connected to a line that rang into infinity. . . . There were additional phone problems in the new system that took Pac Bell and Pac Tel months to correct.”

Nonetheless, the rebuttal reported, the department recently surveyed 602 consumers who had dealt with the department and of those responding, 87% said they would go to the department again to solve their insurance problems.

The department also acknowledged that there was reason for the Consumers Union and others to be unhappy with the operation of an industry-sponsored law that became effective in 1985 requiring insurance companies to offer earthquake insurance to homeowners.

“In the department’s view, (the bill) was questionable . . . (in that it) contained a loophole by which companies could cancel the policy at renewal if the consumer opted for (the) earthquake coverage,” the rebuttal said.

It added that there was nothing legally that the department could do to prevent the cancellations, as the Consumers Union had wanted, but that it supported legislation offering the public alternate means of obtaining earthquake insurance.