Regulatory Framework

History of California Insurance Commission (CIC)---Proposition 103.  (Adopted in 1988)

The landmark Proposition 103 developed a new regulatory framework using a new Regulatory Ratemaking process similar to that used by the California Public Utilities Commission (CPUC).  This new process requires an insurance company filer to have the Insurance Commissioner approve the filed rates before they can be charged to customers, using a cost-of-service methodology similar to the process followed by the CPUC. Because of my experience as President of the CPUC for two years and a commissioner for four years, I am well prepared for the role of sole Commissioner at the CIC.  One of the first of four planks of Proposition 103 was to switch from an Insurance Commissioner appointed by the California Governor to a publicly elected Commissioner every four years. 

Based on studies by various Institutes dealing with the Insurance Industry, a number of indicators provide interesting comparisons between different states in the nation.  First is the difference in the number of companies operating in a state: 74 in California versus 51 in New York and 89 in Illinois.  Second is the greater average time it takes for the CIC to complete a rate filing compared to elsewhere. In 2013 there were about 135 auto rate filings in California that averaged about 140 days to process. In comparison, New York for the same year had 206 filings that took on average 57 days to process. The key question is why it takes so long to process an auto rate filing in California compared to New York.

One likely reason is that Prop 103 added a process that allows consumer third parties to intervene in a case. If a “Substantial Contribution” is realized from the third-party’s effort, the third party is compensated for its time spent.  California is the only major state in the nation that allows such intervention. The California Public Utilities Commission has a similar intervention process using the same “Substantial Contribution” test.  But the CPUC test also includes whether there is an “unnecessary duplication” of effort by the intervenor.

Recommended Action to be taken if I am elected in November 2022 General Election.

If elected, I would recommend a study be undertaken to determine why there is such a wide disparity between California’s time to complete an auto rate filing compared to other states, particularly New York. This study would be done by an independent group from the California State Auditor Department or by an outside independent consulting firm.  

My recommended study should also consider whether the third-party intervention process is accomplishing a “substantial contribution” to the rate filing processes and how much additional time and cost it is adding. The study should also consider what the probable effect in time and cost would be if the CIC added the CPUC step of an “unnecessary duplication” of effort for the intervenor in determining its reimbursements of time and cost incurred.

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  • Alexander Glew