Insurance industry representatives Monday urged state officials holding hearings on the implementation of Proposition 103 not to prevent companies from basing auto policy rates primarily on where a driver lives.
Industry witnesses also said at the first of four days of state Insurance Department hearings that the companies should be given "maximum flexibility" in rate setting, despite a provision in the landmark insurance initiative making a driver's record the prime criterion.
However, late in the day, one company, 20th Century, diverged from others, suggesting a formula whereby the state insurance commissioner could weight pricing factors according to a literal reading of proposition 103, thus radically reducing the importance of where a policyholder lives.
Both department hearing officers and representatives of other companies expressed surprise that 20th Century, the state's sixth-largest seller of auto insurance, had become the first company to accept possible erosion of the so-called territorial rating system.
Other companies warned that, while such a change would mean premium decreases for urban areas, which pay the highest rates under the territorial rating system, it could mean big increases for suburban and rural areas.
According to a controversial clause in Proposition 103, rates for auto insurance policies "shall be determined by application of the following factors in decreasing order of importance: (1) the insured's driving safety record, (2) the number of miles he or she drives annually, (3) the number of years of driving experience. . . , (4) such other factors as the commissioner may adopt by regulation."
The fourth category could include not only territorial rating, but make and model of automobile and a driver's age, sex and other factors.
During the election campaign that resulted in a narrow victory for Proposition 103, the industry argued that the initiative would virtually end the territorial rating system and prompt rate increases in all but four of the state's 58 counties.
After the election, however, some insurance company lawyers started trying to figure out how to interpret the rating clause in such a way as to change the basis by which rates are set as little as possible.
Monday, the department, with Insurance Commissioner Roxani Gillespie absent from the hearing but pledging to read all the testimony, began the hearing process of deciding how to interpret and apply the clause.
For once, some consumer organizations, aware that a major move away from territorial rating would mean higher rates for many Californians, appeared hesitant to say what they thought the commissioner ought to do. Even Harvey Rosenfield, author of Proposition 103, sent written testimony suggesting that territorial rating ought to be allowed to continue in some form.
However, Bill Press, representing the Los Angeles County Task Force on Automobile Liability, called for outright elimination of territorial rating. Press, a television commentator, is a prospective candidate for insurance commissioner when the post becomes an elective one next year.
The insurers who testified took several positions.
Some, such as four industry trade association representatives, urged that territorial rating be kept as a prime factor in setting rates, notwithstanding the language of Proposition 103.
Representatives of some companies, particularly State Farm, the state's largest seller of auto insurance, urged several possible interpretations of the language of the clause that would, in effect, leave territorial rating and most other present rating criteria, such as make and model of car, in place, thus affecting prices little.
The State Farm representatives handed out a series of estimates of what they think would happen if rates depended solely on driving record, miles driven and years of driving experience.
According to the estimates, rural Northern Californians would pay 33% more for auto insurance, suburban and rural San Diego residents 19% more and San Jose residents 15% more, while Central Los Angeles and Beverly Hills residents would pay 62% less, Santa Monica and Malibu residents 44% less, Anaheim residents 15% less and Torrance residents 12% less.
State Farm warned further that if make and model of car were no longer to be used as rating criteria, the owner of a Ford Escort in Central Los Angeles and Beverly Hills would pay 90% more to insure the vehicle, while the owner of a Rolls Royce would pay 92% less. It also suggested that, if age were no longer a permissible factor, adult drivers would pay 11% more and youthful ones 48% less.
Such results would be highly unjust, the State Farm speakers said, suggesting three separate interpretations of Proposition 103 that they said would avoid such injustices.
State Farm had by far the longest and most comprehensive presentation. By the time its representatives got on, all nine television channels that had been present earlier had left, as had most other members of the news media.
One hearing officer commented afterward to The Times that it is inevitable that some "tortured" interpretation will eventually be used by the department, in order to prevent wild fluctuations of prices.
When 20th Century's representative spoke, he took a different approach, suggesting a weighting formula whereby Proposition 103 could be applied without a tortured interpretation of language.
Jim Curley, senior vice president of 20th Century, said that Gillespie could order 30% of pricing determination be based on a driver's safety record, 25% on miles driven, 20% on years of driving experience, 15% on where a policy holder lives, 7% on type of car driven and 3% on the number of cars in a household. He did not discuss what such a system would do to prices.
Other insurers in the room were highly critical of such an approach. They said the state does not keep good enough records or keep records long enough to give solid indications of what a driver's safety record really is.