The California Supreme Court's decision to uphold most elements of a sweeping insurance initiative may have more political than economic impact on the local and national landscapes. The ruling adds kindling to the growing revolt over auto and other types of insurance that has now surfaced in more than a dozen states.
It also transforms the nation's most populous state from one of the least regulated insurance markets into one of the most tightly tethered.
Yet the decision is not likely to lead to dramatically lower premiums in California any time soon, as consumer groups had hoped. Nor will it necessarily economically ruin insurance companies, as the industry had feared.
``All it has done is shift the ball game to another court,'' says Gerald Haims, an insurance analyst at Seidler Amdec Securities Inc. here.
In its decision, the court upheld most provisions of Proposition 103, the Ralph Nader-backed initiative approved by voters in November. The measure included dramatic 20 percent rollbacks and a freeze on auto and property insurance rates.
But the court left room for companies to wriggle out of the rate reductions. It ruled that firms can be exempted if they show the cutbacks would prevent them from earning a ``fair and reasonable'' return. The initiative had allowed exemptions only if a company could show a ``substantial threat of insolvency.''
The multi-billion-dollar question of what constitutes a fair and reasonable return now falls to state Insurance Commissioner Roxani Gillespie. Almost overnight she has come to inhabit one of the most delicate and visible posts in California government.
Indeed, exemption requests began flowing into her office almost immediately after the court's decision.
Many insurers remain confident they will be able to meet the reasonable-return standard and thus avoid the reductions. Some, in fact, think it will allow them to raise premiums.
But consumer activists are equally cocksure that once the industry's books are opened the existence of plump profits will be plain for all to see and reductions will be inevitable.
They vow to put political pressure on Mrs. Gillespie to the point where, in the words of Harvey Rosenfield, the chief author of Proposition 103, she ``will not dare'' to exempt too many companies.
If the insurance commissioner - who was vacationing in Greece when the ruling came down - had any doubts about this, she had only to listen to Ralph Nader, the consumer activist, who Friday called on her to resign because she was ``irreversibly prejudiced'' toward industry.
``It looks like the commissioner is really going to be on the hot seat,'' says California pollster Mervin Field, referring to the current and future inhabitants of the position.
No matter what the commissioner rules in individual cases, however, company officials say they will appeal those rulings to the courts if they deem them unfair. Thus the issue of the rollbacks may take some time to resolve.
``There is still going to be a lot of contention over what is a fair rate of return,'' says Paul Wish, vice-president of A.M. Best Inc., a New Jersey-based insurance rating service.
Whatever the outcome of the rollback dispute, consumers won several other significant victories that will reshape how the industry operates in California. The court left intact initiative provisions that allow banks to sell insurance, that eliminate the industry's exemption from state antitrust laws, and that require auto insurance rates be set primarily by driving records instead of residence.
The measure also turns the insurance commissioner post into an elected position, starting in 1990. Several people have already expressed interest in the job, which, in a state that has more motorists than New York has people, will be a high-profile one. California Democratic Assemblyman and former antiwar activist Tom Hayden is among those contemplating a run.
While many of Prop 103's provisions have been instituted in other states, few have adopted such a far-reaching package.
The question is now how many might try. Skyrocketing auto premiums have already made insurance reform a top political issue almost nationwide. Consumer groups say they have Proposition 103-type drives under way in 14 states.
The ones most closely resembling the California initiative - and where the tug of war with industry is likely to be the most intense - are in New Jersey, Florida, and Illinois.
``The decision reinforces the trend in which people are going to try to restrict the insurance companies' room to maneuver,'' says June Hoffer, an analyst with Prudential-Bache Securities.