Insurance Firm Chiefs ‘Flogged’ by Senate Panel

The state Senate held the legislative equivalent of a public flogging Friday, as 27 insurance industry executives were paraded before a committee looking for ways to knock down roadblocks to implementing Proposition 103, the landmark voter revolt insurance initiative.

With lawmakers labeling their accounting methods a “subterfuge,” insurers were accused of trying to “sneak” out of California rather than face the impact of Proposition 103, a Ralph Nader-backed initiative that calls for 20% rate rollbacks.

In the raucous five-hour hearing that included some heated exchanges between industry executives and the legislators, there appeared to be no meeting of minds and little information that had not already been chewed and digested during the $70-million campaign over five insurance propositions on the Nov. 8 ballot.

Response to Voters

Senate staffers acknowledged that the packed hearing was staged in response to the call for blood from Californians who narrowly passed the consumer initiative and who are outraged by the acts of a few insurance companies that have subsequently elected to stop doing business in the state or have raised their rates.

“I resent the back-alley behavior of some of the insurance companies who are intimidating and threatening the integrity of the ballot box,” said Senate President Pro Tem David A. Roberti (D-Los Angeles). “My level of disgust with the arrogant actions is such that I believe that the Legislature must forcefully and sternly remind this multimillion-dollar industry that our democracy is built upon the electoral process.”

Time and again the executives suffered through speeches about the “will of the public” and how “the voters have spoken.”

Roberti and Sen. Ed Davis (R-Valencia) came to verbal blows at one point when the rhetoric included references to the “supreme Soviet.”

Davis said that Roberti’s proposal to fine companies that try to leave the state was a form of “price control” and an example of “totalitarian” government that would not get his support.

Roberti shot back: “Totalitarianism is when the government . . . does not do what the people want done.” And in this case, he said, that means implementing Proposition 103 fully.

Propose Penalties

Roberti and Robbins have proposed legislation that would force insurers attempting to abandon the California market to renew existing policies or pay any higher premium costs that their customers encounter when they obtain insurance elsewhere. The companies would also be slapped with fines amounting to 50% of the total annual premiums they earned statewide.

One thing that was evident in the skirmishing between lawmakers and the 27 industry executives called to appear under threat of subpoena was that those outside the industry understand little of its workings, and industry officials are either unwilling or unable to explain it.

Even simple questions such as one from Sen. Daniel E. Boatwright (D-Concord) about whether Travelers Insurance Co. was continuing to sell fire insurance could not get a yes or no answer.

“For 16 years (in the Senate) I haven’t gotten a straight answer” from the insurance industry, Boatwright said after screaming repeatedly but ineffectively at Ronald Foley, senior vice president of Travelers.

Other company executives could not say how many subsidiaries they had operating in California, and whether they were still actively doing business.

Round of Laughter

Assemblywoman Maxine Waters, a strong Proposition 103 backer who joined the senators at the hearing, asked if GEICO Insurance Co., one of the largest firms in the state, was actually a subsidiary of State Farm. The folly of her question received a huge round of laughter from the partisan crowd of insurance executives and lawyers, but it also worried many of them.

“Their questions indicate they have a lot to learn,” said Laura P. Sullivan, vice president of State Farm Mutual Insurance, in an interview after she was grilled by the committee for half an hour.

Roberti, in an interview, countered that the insurance companies “have made it far more complicated than it needs to be.”

Still, when Proposition 103 proponent Harvey Rosenfield thanked the committee for “beginning to pull the veil of secrecy off” the insurance industry, a low grumble rippled through the assembly with whispered comments such as “oh, come on!”

True to Form

Playing to about a dozen television cameras, an equal number of radio tape recorders and assembled reporters, those on both sides performed true to form.

Dark-suited executives spoke in industry jargon, contending that their firms were losing millions of dollars from their California business. And the politicians, even those who did not support Proposition 103 before the election, defended the public with spirited rhetoric.

But as most of the cameras disappeared after the 30-minute lunch break and the crowd thinned a bit, the emotional tone of the hearings cooled.

John Martin, president of Aetna Personal Lines Division, acknowledged that the industry’s “stature is pretty damn low,” and said that insurers want to begin working more closely with critics and legislators to solve the problems of escalating rates and costs. “This win-win, lose-lose mentality has to end.”

Martin said he would willingly open the company’s books to help explain why the company is losing money on auto insurance. “This intrigue doesn’t do anyone any good,” he said.

Constitutional Test

Nonetheless, the attitude expressed by most industry executives was that they are reasonably sure that Proposition 103 will not withstand a test of constitutionality that is now being pressed at the state Supreme Court. And if it does withstand the test, they are leaving.

State Sen. Alan Robbins (D-Van Nuys), who chairs the Senate Committee on Insurance, Claims and Corporations that held the hearing, repeatedly advised the executives that he and Roberti will make good on a promise to pass legislation that would levy huge fines.

With the level of penalties being proposed, Robbins told Peter Cazolla, president of Pacific National Insurance, “the best economic decision you can make is to renew policies and work within the law.”