Widespread Insurance Scam Told

Outlining what they termed a scam that has helped inflate insurer losses in the beleaguered assigned-risk auto insurance system, insurance agents from Los Angeles and Orange counties testified at a state Insurance Department hearing Friday that they had been illegally offered up to $1,250 to refer accident victims to lawyers.

The agents said that sometimes as many as five passengers in a vehicle are referred at the same time, bringing the agents who might otherwise simply pay off the claims themselves thousands of dollars in payments from personal-injury lawyers. An average referral fee is about $900 per person, they said.

“It’s ambulance-chasing on a grand scale,” said Donald R. Stewart, executive director of the American Agents Alliance. “Sometimes, it’s through agent referrals. Other times, it’s through advertised phone numbers that are easy to remember, (such as) 222-2222 for Los Angeles.”

Calls to the number Friday were answered by a Spanish-speaking operator. She said no lawyer was on hand to respond to the allegations. No representatives of lawyer groups testified in regard to the allegations at the two days of hearings in Los Angeles.

Paid agent referrals are a misdemeanor violation of the state’s Business and Professions Code punishable by up to six months in jail and fines up to $2,500. However, prosecutions of the unlawful solicitation statute have been comparatively few, according to officials.

The agents blamed growing insurance company losses in paying claims from the state’s 1.3 million assigned-risk drivers on exaggerated and fraudulent claims, which they said attorneys often make after obtaining referrals.

The hearings turned out to be a powerful demonstration of agent discontent with both the state’s personal-injury attorneys and the insurance companies. Hundreds of agents attended the hearings, vigorously applauding testimony that condemned practices of both parties.

Heads of agent associations also testified that virtually all major insurers in the state are ignoring provisions of Proposition 103 that require them to sell policies to “all comers” who qualify for “good driver discounts” by virtue of not having more than one minor traffic violation in the previous three years.

They said that failure has contributed to a situation in which hundreds of thousands of drivers with good records--particularly in inner-city areas populated by racial and ethnic minorities--are joining the assigned-risk system, which was designed to be an insurer of last resort for bad drivers.

Earlier in the hearings, the head of the board of governors of the Assigned Risk Plan, Edward Held of Allstate Insurance Co., testified that claims costs among assigned-risk drivers are “out of control” and that the system is “unraveling.”

Under assigned risk, drivers are allocated to insurance companies in proportion to the total business each firm does in the state. In recent years, Insurance Commissioner Roxani Gillespie, who attended the hearing Thursday, has tried to hold down the rates. Gradually, in urban areas, enrolling in assigned risk has become cheaper than buying a regular policy.

Gillespie has refused for nearly a year to accede to an insurer request for an average 112% increase in assigned-risk rates. This has prompted several companies to sue to get the higher rates or to be excused from participating in the system.

In his testimony, Held estimated assigned-risk losses at $600 million for 1989. He said that two companies, Cal Farm and Sequoia, now are refusing assignments of drivers, and that others, including such major auto insurers as State Farm and Allstate, are accepting assignments only under protest.

Consumer representatives testified, however, that pushing assigned-risk rates up would be unfair without legislative action to provide a no-frills policy for the poor.

Altogether, a picture was painted at the hearing of an auto insurance system in considerable disarray. The angriest testimony, however, came from individual agents who said the prevailing system has put them under intolerable pressures.

Maria Palmer, of Palmer Insurance in Santa Ana, testified that she has incurred anger from many attorneys for refusing to make paid referrals.