In an unusual proposal to bolster the capital of earthquake-ravaged 20th Century Industries' two insurance units, the state Insurance Department, 20th Century and two consumer advocacy groups have together endorsed a temporary 6% increase in the companies' auto insurance rates, effective Sept. 10.
The proposal, negotiated late last week and subject to approval by an administrative law judge and Insurance Commissioner John Garamendi, would generate an additional $54 million in annual auto premiums for Woodland Hills-based 20th Century Insurance Co. and its sister, 21st Century Casualty Co.
As part of the deal--an apparently unprecedented aspect--20th Century would deposit $1 million of its surplus in Oakland-area banks to help promote economic development there and would contribute $50,000 directly to support nonprofit community activities, according to Selwyn Whitehead, president of the Oakland-based Economic Empowerment Foundation, which negotiated that part of the agreement.
An estimated $685 million in claims costs from the Jan. 17 Northridge earthquake have depleted 20th Century's capital to the point that "there was concern about the company's solvency," Insurance Department spokeswoman Elena Stern said Monday.
Under the proposal, 20th Century would get the 6% rate increase until its surplus--or cushion against losses--reached the level of one-third of its premiums for two consecutive months. Currently, the insurer's surplus is only about one-fifth of annual premiums. Once that threshold was reached, the rate increase would drop to 3% above current levels.
20th Century had originally requested a 9.2% auto rate increase.
Harvey Rosenfield, author of the Proposition 103 insurance rate-cutting initiative approved by California voters in 1988, criticized the proposal as "deeply flawed." He said it would require 20th Century's auto insurance customers to "make a forced investment in the company to maintain its solvency" but would deny them any return on that investment.
Rosenfield's Proposition 103 Enforcement Project requested a formal hearing on the proposal before it is approved. Administrative Law Judge Michael Jacobs scheduled the hearing for Aug. 25 at the Insurance Department offices in San Francisco.
Whitehead in turn criticized Rosenfield for trying to thwart the agreement, saying that his organization "seems to want to play the sole leadership role in representing consumers against insurers."
Besides Whitehead's organization, the other advocacy group that negotiated the proposal was San Diego-based Utilities Consumer Action Network. Its director, Michael Shames, said the proposal benefits consumers by keeping 20th Century--consistently among the least expensive California insurers--from shutting down or being swallowed up by another company.