Car Insurance Regulation
Price of Paradise · Hawaii Public Radio · aired 1996-01-14
Guests: Donna Ikeda (State Senator); Linda Gilchrist (insurance company executive)
Duration: 1:04:38

[00:00:00] Randall Roth: Good morning. This is Randy Roth, host of the Price of Paradise Radio show. We like to call it Pop Radio. Everyone who works to bring this program to you is a volunteer who believes in the importance of lively and informed public dialogue. Our airtime is paid for by the Hawaii Community Foundation, an organization and organization of great importance to the people of Hawaii. The folks at the Foundation have supported Pop Radio and other Pop activities for some time now and we appreciate it greatly. Our show today gets into an area that is important in its own right, but also, I think, illustrates a philosophical tension that one finds in many other areas here in Hawaii.

[00:00:29] Randall Roth: Our show today gets into an area that is important in its own right, but also, I think, illustrates a philosophical tension that one finds in many other areas here in Hawaii. The topic is insurance regulation, and the tension has something to do with unfettered free enterprise on the one hand and government control of the economy on the other. Most of us see the best approach is one somewhere in between the two extremes, but each of us, I think, tends to lean toward one end or the other. My guests this morning are Donna Ikeda and Linda Gilchrist. Donna currently is chair of the Senate Ways and Means Committee, but has chaired the Committee on Consumer Protection in the past. She's an assistant vice president with Grand Pacific Life Insurance Company, but that's a company that deals only in life insurance and annuities, and those are a couple topics that we're not going to discuss today at all.

[00:00:58] Randall Roth: My guests this morning are Donna Ikeda and Linda Gilchrist. Donna currently is chair of the Senate Ways and Means Committee, but has chaired the Committee on Consumer Protection in the past. She's an assistant vice president with Grand Pacific Life Insurance Company, but that's a company that deals only in life insurance and annuities, and those are a couple topics that we're not going to discuss today at all. Linda Gilchrist is executive vice president of AIG Hawaii Insurance Company Inc. and when I asked each of them for a short biographical sketch, they each first said that she is a proud grandmother. So we've got two proud grandmothers in the studio today. Well, Donna and Linda, good morning and welcome to Pop Radio.

[00:01:20] Randall Roth: Linda Gilchrist is executive vice president of AIG Hawaii Insurance Company Inc. and when I asked each of them for a short biographical sketch, they each first said that she is a proud grandmother. So we've got two proud grandmothers in the studio today. Well, Donna and Linda, good morning and welcome to Pop Radio.

[00:01:39] Donna Ikeda: Good morning.

[00:01:40] Randall Roth: Our topic today is the regulation of the insurance industry here in Hawaii. And hopefully our listeners have had an opportunity to look at page B3, the op-ed page of this morning's Honolulu Advertiser. There is a headline, "Insurance industry overregulated?", big question mark. And on the left side, no, Donna Ikeda is saying, no, it isn't. The rules guarantee fair rates. Over on the other side, it says, yes, competition, not laws, will control rates. Um, and I think that kind of says it all, Linda. I I believe, as I read your piece, your core message seems to be that if you want low rates, if people who buy homeowners insurance, workers compensation insurance, car insurance, if they want the rate as low as possible, then they should be supporters of less regulation.

[00:02:11] Randall Roth: Um, and I think that kind of says it all, Linda. I I believe, as I read your piece, your core message seems to be that if you want low rates, if people who buy homeowners insurance, workers compensation insurance, car insurance, if they want the rate as low as possible, then they should be supporters of less regulation.

[00:02:31] Linda Gilchrist: Basically, uh, what I'm saying is there's been a number of studies over the last 20 years that have looked at insurance rate making in various states, and over and over again, we find that, uh, those states that allow competition to control the rates, uh, provide the lowest rates for the consumer, and we think that's fair.

[00:02:53] Randall Roth: Okay. Well, what's to keep the insurance companies from simply setting real high rates and then just smiling when people complain?

[00:03:03] Linda Gilchrist: It's the same thing that keeps the retail stores or the, uh, car dealerships or any other, uh, private industry from setting whatever rates they want to. Uh, and it's the thing that makes our capitalistic system so great. Competition comes in, people compete for the business, and in competing for the business, they know they have to offer value, and in that value includes low rates.

[00:03:30] Randall Roth: Donna, that that is an interesting thought to me because I know in Linda's piece she said, well, why would we regulate insurance products, but not regulate the the price of, uh, cars and clothes and food and that sort of thing? Uh, why is it that there's something about insurance products that makes you believe that the state needs to come in and say the price can only be X dollars as opposed to letting the market control the way Linda is suggesting, um, at least she feels would work best?

[00:03:59] Donna Ikeda: Well, I would agree that competition, uh, would work to lower rates. The problem is we don't have competition in this state. Now, back in 1973, when there was a problem with no-fault auto insurance premiums being too high, the legislature at that time in, uh, while it wasn't no-fault, was just plain auto insurance at the time. We didn't have no-fault. The legislature at that time passed no-fault, and in doing so, left it up to competition, open market. Um, there were a number, hundreds of, of, um, insurance companies in the market, but over time that dwindled down to really very, very few. And although they they're supposed to be selling no-fault insurance or offering it, they are not.

[00:04:27] Donna Ikeda: Um, there were a number, hundreds of, of, um, insurance companies in the market, but over time that dwindled down to really very, very few. And although they they're supposed to be selling no-fault insurance or offering it, they are not. So, for the most part, you have maybe less than 15 companies.

[00:04:46] Randall Roth: Well, that's something as I as I read your article, it it made me wonder. Um, you you wrote here over time, as no-fault became less attractive to insurers because of falling profit margin, then the the they left the market. Why wouldn't they just raise the price of their insurance and get their profits back up?

[00:05:06] Donna Ikeda: That's a good question. Um, I think for the most part, Hawaii suffers from the fact that we are a very, very small market. We do not really amount to much in terms of, uh, premiums, you know, as compared to the rest of the nation or as compared to a state like California. And as such, companies just sort of feel that they can do better elsewhere and they leave.

[00:05:28] Randall Roth: Okay. Um, Linda.

[00:05:30] Linda Gilchrist: I you know, I absolutely agree with what Donna is saying. We have a very small population base, we are separated by great distance. And therefore, we have a lot of reasons why we are not attractive to insurance companies. One of the things we need to do therefore, is to make ourselves as attractive as possible. And I am saying that this is one of the things that we could do, uh, to make ourselves attractive to insurance companies coming in.

[00:05:57] Randall Roth: Less regulation would be more attractive. Correct. Donna.

[00:06:00] Donna Ikeda: We've tried that. Um, back in 1992, if you recall, we made some major revisions to the no-fault law. And again, listening to the insurance companies, we changed some of the major sticking points as far as they were concerned. One of them was the take all comers provision, which which said that anybody who walked into an insurance company and asked for a no-fault policy had to get one. We changed that. And and, uh, that didn't result in more companies coming into the market.

[00:06:33] Randall Roth: Okay. Linda.

[00:06:34] Linda Gilchrist: Well, but let's take a look at what's happened since 1992. We we the reforms of 92 were great and I think the insurance companies that are here are very appreciative. But the thing of it is, uh, we also at that same time passed a mandated rate roll back. Insurance companies don't like that when they look at coming into a state that passes mandated rate rollbacks, they get very scary. Well, I know you don't like it. And the other thing, if I could just comment, it since that time, we have had a lot of regulation in the bin and we really don't know where we're going with the auto insurance issue. It looks like this year we're going to have a lot of laws or a lot of bills that are going to be in the legislative session considered on auto insurance.

[00:06:51] Linda Gilchrist: Insurance companies don't like that when they look at coming into a state that passes mandated rate rollbacks, they get very scary. Well, I know you don't like it. And the other thing, if I could just comment, it since that time, we have had a lot of regulation in the bin and we really don't know where we're going with the auto insurance issue. It looks like this year we're going to have a lot of laws or a lot of bills that are going to be in the legislative session considered on auto insurance. And if companies are afraid of the potential of great rollbacks again, uh, no, they're they're not going to come into the market. And rollbacks, rollbacks is is mandated reductions and pricing. Correct, mandated pricing.

[00:07:18] Linda Gilchrist: And if companies are afraid of the potential of great rollbacks again, uh, no, they're they're not going to come into the market. And rollbacks, rollbacks is is mandated reductions and pricing. Correct, mandated pricing.

[00:07:32] Randall Roth: Donna, what do you think?

[00:07:33] Donna Ikeda: Well, in 92, uh, when the legislature passed those revisions and I worked on them, the 15% rollback was something that was attached to to certain, in other words, cost it out according to the kinds of reforms that we we initiated. Um, nevertheless, the companies, for the most part, agreed that most of the provisions that were passed in the law would result in a reduction in cost. And what the legislature tried to do was assure that that would happen. Remember now, because at that until 1992, insurance companies were not regulated price wise by the state.

[00:08:27] Randall Roth: And and and I think that's part of your message, uh, Linda, if I understand it that that there are various ways that companies can be regulated. And if, for example, they have to sell to all comers or there other things mandated, that that makes the market unattractive to them?

[00:08:43] Linda Gilchrist: Uh, that is correct for people looking at our state.

[00:08:45] Donna Ikeda: Well, I have a problem with that. And my problem is that if you look back in the last 10 to 15 years, you'll note that companies, insurance companies pull out whenever there's a problem. They pulled out of, um, the Big Island as an example because of the the fact that there's an active volcano there and there was some kind of a map done by some federal agency and because of that map, most of the island was put into a danger zone, so they quit selling insurance.

[00:09:17] Randall Roth: But but why wouldn't they just raise prices? In other words, my my impression and and I'm speaking from ignorance, my impression is that in a situation like that, if the market wasn't heavily regulated, they would simply take this new information into account, raise their prices accordingly and things would go on.

[00:09:35] Donna Ikeda: They they could have. They could have, but then when they raised their rates, they can't just raise it for that one area. They've got to do it across the entire state, okay? But my point is this, every time the going gets tough, they pull out of the market then the legislature is then forced to step in and pass something to take care of the consumers.

[00:09:56] Linda Gilchrist: But let's take a look at that. Insurance is business and you're going to find the same thing with business in general. If recently, in the last couple of years, we've had an influx of retailers into our state, they're not going to stay here if they can't make money on it. They're going to leave and insurance is no different. And a lot of times, what's happening with the companies coming leaving the state and going out, uh, is that regulation changes a law changes and the companies react. They say, we cannot exist in this environment. Workers' comp is an excellent example. Why are insurance companies leaving the state and not writing workers' compensation insurance? It's because they can't afford to stay here and write it. And the ironic part about it is they're in business to write insurance, they're not going to leave unless there's something drastically wrong.

[00:10:36] Linda Gilchrist: Why are insurance companies leaving the state and not writing workers' compensation insurance? It's because they can't afford to stay here and write it. And the ironic part about it is they're in business to write insurance, they're not going to leave unless there's something drastically wrong.

[00:10:51] Randall Roth: So in in Donna's article, where it says the insurance industry came in and wanted rate increases of something like 80% in the workers' comp area and the legislature, through regulation, held it much much lower than that. Linda, as I understand it, you're saying, well, in the short run, of course, that regulation held down the cost, but then you had companies simply leaving the market because they couldn't earn the kind of profit that they felt was necessary. And so, in the long run, because there are fewer companies writing this kind of insurance, the pressures are all upward. Donna.

[00:11:24] Donna Ikeda: Well, the state has an actuary that we hire. And the actuary took a look at some of those figures that were presented and recommended not giving them an 80% increase. Now, I would have presume that the actuary knows his business.

[00:12:05] Randall Roth: There's a difference. Um, you can't compare an insurance company with a retailer. A retailer sets prices and will stop selling if they don't make money. And people can do without shoes or whatever, they can go elsewhere, they'll find shoes as an example elsewhere, but insurance affects other things. If you don't have a homeowner's policy as an example, your mortgage is in jeopardy. Now, if you happen to be lucky enough to own your home outright, that's not a problem. If you're borrowing money to pay for your car, there's certain requirements that the bank or the lending institution mandates, and you must have insurance coverage according to their mandate, or you can't get the loan. So those are the kinds of reasons why the legislature is forced to step in every time the insurance companies leave. Yeah, okay. Linda.

[00:12:35] Randall Roth: So those are the kinds of reasons why the legislature is forced to step in every time the insurance companies leave. Yeah, okay. Linda.

[00:12:43] Linda Gilchrist: Well, I absolutely agree with what Donna is saying. Insurance is very important, but that's one of the reasons why we need to make it as competitive as possible. You do have states where they do have competitive rating. Illinois is one. California for many, many years had competitive rating. They had insurance companies there. They weren't concerned about not having, um, homeowners insurance or workers' compensation insurance for their people.

[00:13:08] Randall Roth: Okay. Well, I want to remind listeners that this is the Price of Paradise Radio show, Pop Radio. We're talking about the regulation of insurance in Hawaii. My guests in the studio are Donna Ikeda, and some of you may say, why Donna Ikeda, she works for an insurance company. Well, she's an assistant vice president of Grand Pacific Life Insurance. but it sells only life assurance insurance and annuities and that's not what we're talking about today. And even though currently she's chair of the Senate Ways and Means Committee, in the past she's chaired the Committee on Consumer Protection, which is where all the action is so far as insurance regulation is concerned. With us also is Linda Gilchrist, who is an executive vice president with AIG Hawaii Insurance Company Inc., and both are, as they tell me with a smile on their faces, proud grandmothers. If you would like to ask a question or make a brief comment, just call us at 955-8821. Neighbor islanders are always invited to call collect. The number again is 955-8821.

[00:13:41] Randall Roth: With us also is Linda Gilchrist, who is an executive vice president with AIG Hawaii Insurance Company Inc., and both are, as they tell me with a smile on their faces, proud grandmothers. If you would like to ask a question or make a brief comment, just call us at 955-8821. Neighbor islanders are always invited to call collect. The number again is 955-8821.

[00:19:00] Linda Gilchrist: A consumer advocate is not going to be able to change that, Ruth Ellen. I'm sorry, but, you know, that's just, uh, what we need to take a look at is the roads and doing something about the traffic conditions over there.

[00:19:12] Randall Roth: So, so conditions are what they are, and and what I hear you saying is that if the government comes in and says, your premium is going to be X dollars on the average, if that's higher than what the conditions would suggest is necessary, well then you're going to be making more money than what you would have to make and people are going to be paying too much. On the other hand, if government comes in and says, you're going to charge X and that's less than what you need to charge in order to earn a reasonable profit, then sooner or later, every company, I guess, is going to leave that market.

[00:19:42] Linda Gilchrist: That is correct.

[00:19:43] Randall Roth: That's the essence of of Linda's position. Donna, where does she miss the boat?

[00:19:50] Donna Ikeda: Um, that's a simple way of of doing I mean looking at it. I wondered why it appealed to me. And yes, they the insurance companies leave the market. And when they leave the market, what's left? The problem falls on the legislature and the legislature has responded to those problems. And that's the reason why we have a special fund to take care of problems like the Big Island, and we forced companies to provide coverage, albeit, very very restricted coverage.

[00:20:21] Randall Roth: So you're saying there's nothing inherently wrong in the insurance industry. It's just that for some reason, the it it's dysfunctional right now, and that's why the legislature is doing things as opposed to It's dysfunctional because Hawaii is a small market. We are not competitive. We are not competitive, and I think that's the the major problem. And and how would you measure competition by the number of companies offering their product or or is there some other way to measure just how competitive we are could be?

[00:20:51] Donna Ikeda: Well, if the 300 plus companies that were in existence prior to well, back in the 70s, I would say was, you know, we're still here and still selling, I would say it's a competitive market. But that that's not happening today. And so you know, my frustration as a legislator is, look, you want competition, and you want to be able to control the prices that you charge. Fine, guarantee us that no matter what happens, you'll stay here.

[00:21:22] Linda Gilchrist: Well, guaranteeing no matter what happens, I mean, now that's It's just a little bit difficult. It's just a little bit difficult for anybody to do. Wait a minute. I think I think that's a fair exchange. I mean, look at Homeowners Insurance for many, many, many years was profitable. Nobody ever complained, no insurance company ever complained about homeowner's insurance. They made money on home homeowners insurance until Iniki.

[00:21:50] Donna Ikeda: And in fact, if there was anything wrong with the regulatory scheme, it was that they could see that insurance companies were not charging high enough premiums. They were actually keeping their costs down to take to get a larger share of the market. But when Iniki hit, that concentrated market, those companies like HIG that had a concentration of clients or customers on Kauai, as an example, went under. So if regulation failed there, and I would admit that it's a possibility, it failed because it didn't increase rates.

[00:22:25] Linda Gilchrist: Well, I don't think that what happened in the homeowners market had really anything to do with regulation. To be perfectly truthfull with you. Donna is talking about the fact that it was a highly competitive market, and it was. Insurance companies were doing very well. It is a black mark on the insurance industry because as people who are supposed to be knowledgeable about these things, we did not foresee that kind of a loss happening in these islands. We were just totally caught unprepared that we could have a $2 billion loss.

[00:22:57] Randall Roth: But you took it on the chin and when I say you, the insurance industry lost that money.

[00:23:03] Linda Gilchrist: We did. And as a matter of fact, you know, if you go back and take a look at that, it would at the rates that we were charging at that time, just to cover Iniki by itself, it would have had to take all of those rates for 72 years to cover that loss. And that doesn't include all of the other losses that we have in running the business. So, something had to happen. Now, it's not unusual for the state to step in and help with catastrophic type losses. The insurance industry has never been able to cover those kinds of losses by itself. Take a look at earthquake in California.

[00:23:44] Randall Roth: So you'd be in in agreement with that was a disaster.

[00:23:47] Donna Ikeda: No, from the insurance, no, from the insurance standpoint, and from from the state from the fact that the that the state had to step in and do something about it. And it created a greater problem.

[00:23:57] Randall Roth: Okay. Well, let's and I I think we Ruth Ellen, I think we lost you. Yeah, let's go to John in Waikiki. Good morning, John.

[00:24:03] Caller: Yes. Good morning. Uh, my question is, uh, I live in an apartment on the 19th floor of a a building in Waikiki. When I got a a mortgage, they required that I have flood insurance. And I said, oh, not too bad, because if a pipe break Oh, no, that doesn't count. It has to come from the ground up to the 19th floor before we'll pay. And And you're required to have And I'm required to have it. Now, to make it worse, the building has flood insurance. So, this year we called and said, well, at least we won't have to pay that. Oh, no. The building doesn't count.

[00:24:40] Randall Roth: John, stay on stay on the line. I want to get Linda's reaction to this one.

[00:24:44] Linda Gilchrist: Good. Well, I guess it just goes to show you that insurance companies aren't the only ones that do things kind of crazily. Uh, basically, this is a mortgage company rule. It really doesn't have anything to do with the insurance companies. We're not the ones that are requiring it. But um, in giving mortgages, uh, one of the requirements is that if you're in a flood plain, that you have to have flood insurance. And regardless regardless of how high you are.

[00:25:10] Donna Ikeda: Don't blame the state for that.

[00:25:15] Randall Roth: Well, John, I guess I don't have the right person here, but it sounds kind of silly and maybe they'll blame You could blame you could blame the state by having them get the insurance company to put some logic into this thing. More more regulation, right? We should tell those insurance companies to quit doing what the banks want them to do.

[00:25:33] Donna Ikeda: It's it's it's uh it it isn't the state and it isn't the insurance company. Flood insurance is something that's mandated by the federal government. If you happen to live in a flood zone, they mandate that you have coverage, and I don't know what the specifics are. But yes, in his case, I think it's ridiculous.

[00:25:50] Randall Roth: John, have you read the book, The Death of Common Sense? I I think we've got a new chapter for the fellow who wrote that book. John, thanks for your call. We have David from the Big Island. Good morning, David.

[00:26:01] Caller: Good morning. I would like to respond to the the comment that insurance auto insurance is expensive on the Big Island because our roads are so bad. Auto insurance is expensive in the whole state because we spend one third of all our insurance money determining who is at fault in an accident. For Hawaii, that comes to $140 million a year. If we went to pure no fault, where we didn't have to go to court and determine who's at fault, then insurance would be affordable for everybody.

[00:26:27] Randall Roth: David, stay on the line. Donna, I frankly don't know were you on the side that supported no pure no fault last session, or were you supportive of the governor's veto of that bill?

[00:26:39] Donna Ikeda: No, I I supported pure no fault.

[00:26:40] Randall Roth: So you and David are are kindred spirits on this one.

[00:26:43] Donna Ikeda: Yes.

[00:26:43] Randall Roth: What's going to happen during the coming legislative session so far as this no fault area is concerned?

[00:26:49] Donna Ikeda: I think it's anybody's guess, but the Senate position is to try and and modify the pure no fault bill, keeping the same concept, but addressing some of the problem areas um like the the major catastrophes and people um dying or or becoming um paraplegic or quadriplegic and and, you know, those kinds of problems.

[00:27:10] Randall Roth: Last year the the percentage thrown around was 55% that that people like me would enjoy a 55% savings on our Was it 45%? 45% savings on our our car insurance. Is that um something that is kind of in the ballpark of what you'll be trying to to come up with this year in terms of legislation that would support that?

[00:27:28] Donna Ikeda: Yes. Yes.

[00:27:31] Caller: Yes, well I I hope they do it because that that's where the money will be saved, not putting guard rails up.

[00:27:36] Randall Roth: Okay. Well, I think it's going to cost some of us lawyers a little bit of work.

[00:27:40] Donna Ikeda: It will.

[00:27:42] Randall Roth: David, thank you for your call. We have another David from another Neighbor Island. David from Maui. Good morning, David.

[00:27:47] Caller: Hi. Okay, I've got a couple questions. One, uh is not when you buy insurance, when I buy insurance, Homeowner's Insurance, I think that I buy insurance for a lifetime or a long time, and I'm betting something will happen to me. That's why I buy the insurance. The insurance company is betting something won't happen to me, and they sell me insurance, and it seems like it's an arrangement that has to last a long time. I've invested 15 years in Homeowners insurance, and then all of a sudden my insurance company tells me that they will not insure me anymore, and I find that my rate goes from 600 a a year to 3000. And I don't see how that is fair.

[00:28:22] Caller: And I don't see how that is fair.

[00:28:24] Randall Roth: Mhm. Let me get Linda's reaction to that because Donna earlier was saying that the legislature would approach things like this differently if the companies would would guarantee that they will always be there.

[00:28:35] Linda Gilchrist: Well, David is absolutely right. When you're buying insurance, you are buying it for a long time, and it is the uh losses that are pooled over a long time to determine what the rates are and everything. What I'm saying is that the insurance companies when they were charging that $600, they had that product significantly underpriced, and they just did not realize it at the time. losses. The insurance losses. deal now. He just got a great deal until the insurance companies wised up to just how much damage a hurricane could do. And actually, if you compared our Homeowners rates pre-Iniki with what people were paying in other states, uh, we were getting a very good deal. And now we're more in line with what, um, what other states have to pay.

[00:30:45] Linda Gilchrist: And actually, if you compared our Homeowners rates pre-Iniki with what people were paying in other states, uh, we were getting a very good deal. And now we're more in line with what, um, what other states have to pay.

[00:30:58] Caller: But if you compare the rates now with say, Florida, our rates are much higher.

[00:31:04] Linda Gilchrist: Uh, David, I'm not you know, that's not my understanding. I don't have those stats here with me today, but I think, uh, what I've seen if you compare us with Florida, Louisiana, Texas, and areas like that, on the coastline. Now, you have to remember in Florida, you have a lot of places that are not on the coastline and Hawaii, we're all on the coastlines. So, um, I think we are competitive, David.

[00:31:27] Caller: Hey, two two more points. One is that my neighbor, for instance, he is insured with a company that did renew. His rate is still pretty much the same. If I go to his insurance company, they will refuse me coverage. How is that fair?

[00:31:39] Linda Gilchrist: Well, it's impossible for me to talk about what different insurance companies are doing. I just don't know. Um, so I, you know, I don't know the circumstances what the company is or anything. I'm I'm sorry. I don't think I can answer that, David.

[00:31:54] Donna Ikeda: I can I can try. Some of the companies, um even though they were having a hard time and even though they sustained losses after Iniki, were good corporate citizens and stayed in the market. And by staying in the market, they couldn't take on any more any new, um people. But they at least maintained coverage for their current and former clients. Um, and so if you had a policy with them, they carried you and they renewed your policy. Other companies, however, just closed their doors and and refused to renew policies and refused to sell.

[00:32:31] Randall Roth: Linda, the impression I have and and I keep, uh, prefacing this by saying, I really don't know much about this area, but is it possible that some of those companies decided to get out of the market at that time in part because insurance is so heavily regulated in Hawaii. In other words, does this dovetail into your earlier comment that if there was less regulation generally in Hawaii, maybe companies wouldn't be opting out the first sign of trouble like the the the Iniki experience?

[00:32:58] Donna Ikeda: Well, I'm I'm not going to blame companies getting out of the homeowner's market completely on regulation. I think regulation does play a, you know, it's a piece of the puzzle. And when you make a big decision like that, you make it on many different factors, not just on one factor. But the reason companies got out of the market after Iniki and and I don't think it has anything to do with being a good corporate citizen. It was it was that they were going to go broke. I mean, they could not afford uh to stay in business. There was no way that they could pay a loss for another hurricane that would would occur. Now that would be selling a sham.

[00:33:15] Donna Ikeda: But the reason companies got out of the market after Iniki and and I don't think it has anything to do with being a good corporate citizen. It was it was that they were going to go broke. I mean, they could not afford uh to stay in business. There was no way that they could pay a loss for another hurricane that would would occur. Now that would be selling a sham. And uh that's not fair to the consumers.

[00:33:38] Randall Roth: Yeah, that's Yeah, I guess even if I could buy insurance, if it was just a piece of paper. Yeah, it wouldn't be good.

[00:33:43] Donna Ikeda: I think you I think you need to remember what Linda said early on about all the the companies in uh the United States and you know how big these companies are. And I think that's a relevant fact. If they wanted to, um, stay in the Hawaii market, most of them could. Um there are very few, in fact, I can probably count them on one hand, companies that are considered um local and small and but and they stay.

[00:34:12] Randall Roth: And local means they just focus on the Hawaii market.

[00:34:16] Donna Ikeda: They don't have any big, um corporation or, you know, umbrella over them. They they're single entities, uh like Island Insurance as an example, um, wholly owned within the state. And now they took a beating with Iniki. Probably more than than some other some of these other guys, but they stayed.

[00:34:36] Randall Roth: Logic would suggest the other guys would be more likely to stay because they can spread all of these occurrences out over a lot a large period of time which brings me back to the the politics but

[00:34:50] Linda Gilchrist: Well, Donna is right. We only Actually, we only have one true domestic and that's Island insurance company. Every other insurance company operating in this state is actually, you know, tied to or has a parent someplace else outside of the state. But in and that is a very real light. But remember what I also said is that when you file your rates in this state or any other state, you have to only show your loss experience for this state. So a big state like working in, you know, writing in all 50 states, they can't go to New York and say, well, we want to increase our rates in New York because we paid for a hurricane in Hawaii.

[00:35:16] Linda Gilchrist: So a big state like working in, you know, writing in all 50 states, they can't go to New York and say, well, we want to increase our rates in New York because we paid for a hurricane in Hawaii. New York just wouldn't accept that.

[00:35:27] Donna Ikeda: That that may be so, but while they cut back and refused to sell in this state because they were affected by disasters and catastrophes in other states, they certainly could do the opposite and take the profits that they made in other areas to and use those profits to help sustain this state through a hard time.

[00:35:47] Linda Gilchrist: I think I think what we're forgetting here is that the industry was good on its promise. It paid for all of those hurricane losses. Even though it hadn't collected enough premiums in the state of Hawaii. Is that not what insurance is for?

[00:36:02] Donna Ikeda: Well, absolutely. But what I'm saying is, we didn't pay for that a our particular company did not pay for those hurricane losses with Hawaii money. We paid for it out of our company fund. I mean, we were helped by our parent to pay for those losses, and that and that's good. But basically, what the parent was saying is, you got to you got to take care of your problems in Hawaii.

[00:36:24] Randall Roth: Well, let's give some others a chance to get into this. David from Maui that we've been talking to. Thank you. I've got some people on the line I I need to move on to. First, I I want to remind listeners that this is the Price of Paradise or Pop Radio. My name is Randy Roth. With me in the studio are Donna Ikeda, who is the chair of the Senate Ways and Means Committee, and Linda Gilchrist, who is an executive vice president with AIG Hawaii Insurance Company Inc. We're talking about insurance regulation in Hawaii, and there are a number of themes, but one of them is whether insurance regulation in Hawaii holds down the cost of insurance or pushes up the cost of insurance.

[00:36:37] Randall Roth: My name is Randy Roth. With me in the studio are Donna Ikeda, who is the chair of the Senate Ways and Means Committee, and Linda Gilchrist, who is an executive vice president with AIG Hawaii Insurance Company Inc. We're talking about insurance regulation in Hawaii, and there are a number of themes, but one of them is whether insurance regulation in Hawaii holds down the cost of insurance or pushes up the cost of insurance. If you would like to ask a question or make a brief comment, just call us at 955-8821. And if you tuned in late, and would like to hear the show in its entirety, tonight at 8 o'clock on KIFO 1380 AM, you can hear the entire rebroadcast.

[00:37:00] Randall Roth: If you would like to ask a question or make a brief comment, just call us at 955-8821. And if you tuned in late, and would like to hear the show in its entirety, tonight at 8 o'clock on KIFO 1380 AM, you can hear the entire rebroadcast. Well, let's go to and I think it's a different David on Maui. The David number two on Maui. Are you there?

[00:37:22] Caller: It's David number three.

[00:37:23] Randall Roth: Number Good morning.

[00:37:26] Caller: Good morning. Um the the double hurricane insurance. So this really needs attention at the state level. I just got my um homeowner contents renewal policy from HIG with um a notice in large black letters hurricane warning, pointing out that my mortgagor, the mortgage company may well require me to to provide hurricane insurance despite the fact that our condo already carries it. Now, this is the case we have thousands and thousands of people in the islands who are affected.

[00:38:00] Speaker 1: by this, and I don't think it's something to be blown off lightly, as it was last time around. I think this needs some energy at the state level.

[00:38:07] Speaker 2: Okay. Well.

[00:38:09] Speaker 1: Let's get a reaction first from Donna.

[00:38:10] Donna Ikeda: Yeah, I think Linda can answer this one, but it's my understanding that if the condo, the building is covered for hurricane, um for hurricane uh damage, then you don't have to really worry about the content.

[00:38:23] Linda Gilchrist: Well, actually, I think what David is talking about here again is the mortgage company requirement, not an insurance company requirement or a state requirement.

[00:38:32] Speaker 1: Exactly. And so we need some energy at the state level to sort this one out.

[00:38:35] Donna Ikeda: Um, well, whether the state will be able to have any influence on what the mortgage companies are requiring or not is kind of questionable, David. But just for David's information, too, one thing he needs to think about, even though the condominium itself has hurricane insurance, uh during a Nikki, a lot of damage was done to the inside contents.

[00:38:58] Linda Gilchrist: And people were devastated by that. So it so it's not a bad thing to consider buying.

[00:39:03] Speaker 1: No, I think it's if it's limited only to the contents, I have no problems, if I'm also expected to doubly insure um the structure of the building.

[00:39:13] Linda Gilchrist: No, I yeah, I don't think David's your being you have to doubly insure. What what you do as the condo owner, you you cover the inside walls. The association covers the outside walls, basically to to simplify it. But it's not double, you're not double covering.

[00:39:31] Speaker 1: Okay, fine. That's what I thought. Thank you for your call. You know, it's interesting to me when we're talking about what what perhaps is a problem now with the mortgage companies requiring a flood insurance on the 19th floor or whatever it might be. There are some of us who who lean in one direction. I'm over here saying, well, well, why doesn't some enterprising mortgage mortgage company say, we're not going to require uh flood insurance, which would make them a more attractive company to do business with than the others. So I'm kind of leaning on the side of saying, gee, with with good information, free enterprise and lots of competition is going to quote solve this problem. But I think some of our listeners are leaning on the other side and saying, immediately, let's go to the legislature, let's mandate this, let's make people. And I just find this very interesting how each of us kind of has a bias one one direction or the other. And it shows up in so many places in in Hawaii, Donna.

[00:40:20] Donna Ikeda: Randy, the legislature would not have stepped in and created the hurricane relief fund if it were not for the fact that mortgages were affected. And the reason you don't have a mortgage company coming in and saying, we won't require insurance is because when they make a loan, they also sell those mortgages in the secondary market. And the secondary market will not look at a mortgage that is that doesn't have that kind of backing or insurance.

[00:40:46] Speaker 1: Okay. Well, let's let's we've got a a bunch of people on the line. Linda, if you can make it brief, then we can move on.

[00:40:51] Linda Gilchrist: Well, I just want to compliment the legislature for what they did with the Hawaii Hurricane Relief Fund. It was one of the greater things I think that we have done in the state, that did help stabilize the market and and get everybody back on square. So it was a great thing.

[00:41:04] Speaker 1: So you would you would say in some instances, state intervention is is not only okay, it's great.

[00:41:10] Linda Gilchrist: It's, well, it's it's necessary.

[00:41:12] Speaker 1: So, I I see both of you is being kind of in between. Neither at a polar extreme. Right. Okay. Let's uh move on to Duke in Waikiki. Good morning, Duke.

[00:41:20] Caller: Good morning, Randy. Listen, I have a comment and then I'm going to get off the line. This is more, I guess, to Linda. Uh, I kind of get a a a bad feeling with insurance companies. They always seem to uh claim they need more money. They're not making money, but when somebody floats the idea of the state getting in and taking over, like no fault entirely, uh then the the insurance companies seem to put up a fight that uh they don't want the state to get involved. You're either going to make money or you're not. If you're pleading poverty, let the state take over if this is such a bad deal.

[00:41:51] Speaker 1: Boy, what do you what do you think of that, Linda?

[00:41:53] Linda Gilchrist: Well, you know, I don't First of all, I don't think the insurance companies are pleading poverty. We're we're in business. We are in business just like, you know, attorneys, grocery stores, anything else. And we do fight uh to be able to make a profit just just like anybody else. So, um, but certainly companies if companies are in poverty, they're not going to stay around. I I They've got to be in financial. I'm not I'm not sure I get the point, right? They've got to be in financially good shape and they've got to earn a reasonable profit or they're simply not going to be here.

[00:42:26] Donna Ikeda: I agree with Duke. I agree with Duke because there have been proposals at the legislature and in fact, in workers compensation, the law does allow the state to go in and form a state um funded comp system. And we've never implemented that because we've looked at the cost and and such. But we've always, whenever that that kind of a proposal has come up, it's always been opposed by insurance companies. And I think he's right. You've got to fish or cut bait. If this is not a state, a good, you know, a good state to do business in, then maybe the state should pool all of its insurance needs and go out and and um find some other market.

[00:43:05] Speaker 1: Now now wait, I don't understand that that that the company should leave and the and the state should provide insurance itself or did I misunderstand?

[00:43:12] Donna Ikeda: Well, no, my proposal was to take all of the insurance because, you know, as as problems come up, the legislature is is forced to get involved and set up all of these different funds. And if that's the case and and we're such a poor risk, then maybe what we need to do is look at taking all of it and if we took all of it, it would come out to like $1.6 billion if I'm not mistaken. And then as we do with other kinds of things, turn it into a um like the public you like public utilities or something and then go out and um Find one provider. Well, maybe not necessarily, maybe you can package them. But go out and and get a request for proposals and see what's out there.

[00:43:43] Donna Ikeda: Well, maybe not necessarily, maybe you can package them. But go out and and get a request for proposals and see what's out there.

[00:43:49] Speaker 1: So, you're talking about even more regulation to where it would it would totally be controlled by government. Government would decide exactly what the product would look like, exactly what the price would be, and it would simply be looking for private companies to administer this program.

[00:44:02] Donna Ikeda: Well, you wouldn't be buying your insurance from different companies. What you would be doing is buying your insurance from the state. But the state would then negotiate the the best deals with different companies and it doesn't have to be um a local company or um a a national company. It could be an international company.

[00:44:21] Linda Gilchrist: Well, there's two reasons why insurance companies oppose these kinds of things. One of it is strictly because it sets up a monopolistic uh situation and we don't believe that's good for the consumers of this state. We believe that uh competition is really in the long run the best the best for the consumers.

[00:44:38] Speaker 1: And and just so our listeners understand, we really are at the the polar ends, I think. What Donna was describing would be a monopoly, but it would be a a regulated, a heavily regulated monopoly. And what you've been promoting throughout the entire show is the opposite end, at least conceptually. That's regulation. Less regulation.

[00:44:56] Linda Gilchrist: Now, another thing, a lot of states do have state run programs for um auto insurance, for workers comp. Those are the most common. Also, for property insurance. The reasons insurance companies have difficulties with the state run programs, not just here, but nationally, is because very often they are under priced. And what they do is when they cannot pay all of their losses, then they go back and charge the insurance companies in the state for um the difference. And then those insurance companies have to go of course and charge their consumers for those extra costs. But it you know, just we've seen it work where states have gone out and set up these programs and just realistically, they don't work on the long haul.

[00:45:06] Linda Gilchrist: The reasons insurance companies have difficulties with the state run programs, not just here, but nationally, is because very often they are under priced. And what they do is when they cannot pay all of their losses, then they go back and charge the insurance companies in the state for um the difference. And then those insurance companies have to go of course and charge their consumers for those extra costs. But it you know, just we've seen it work where states have gone out and set up these programs and just realistically, they don't work on the long haul.

[00:45:41] Speaker 1: Okay. Well, we've got some people who've been waiting patiently. Let's see if we can get to all of them before we run out of time. First, Beverly and KaniaOhe. Good morning, Beverly.

[00:45:49] Caller: Beverly, are you there? Yes, I am.

[00:45:52] Speaker 1: You're on the air.

[00:45:53] Caller: Yes. Uh, I just like to say that what I see in is happening here is that the insurance companies themselves uh are running up the premiums for the personnel that have the insurance. Due to when it comes time for them to do what they're supposed to do, they do not do that, and they cause uh lawsuits to come up on them which in turn they end up having to pay.

[00:46:19] Speaker 1: Do you do you think the insurance companies in Hawaii are unique in that respect and and is this Beverly? Yes, it is. Oh, okay. Do you think insurance companies in Hawaii are unique in that respect or do you think that's the way insurance companies work everywhere?

[00:46:33] Caller: Oh, I think Well, I can only speak for one that I know of, and that's uh, you know, I I you know, Donna Keda is right. Insurance companies need to be regulated. Need to be regulated.

[00:46:43] Speaker 1: And and you know, this is not the forum to talk about your specific problems with a specific company.

[00:46:49] Caller: No, I'm not saying that. I'm saying that, you know, I believe that it needs to be regulated because when it comes time for insurance companies to to uh Your experience has been that they just haven't been there.

[00:47:00] Speaker 1: Right. Okay. Let's let's get Linda's reaction.

[00:47:02] Linda Gilchrist: Actually, I agree with Beverly. Insurance companies do need to be regulated, and that's not actually what we're talking about because, like I said with the Hurricane Relief Fund, there's a lot of good regulation. What we're talking about here is price regulation, and I think that's one area that we can stop and take a look at. Uh, price regulation actually came into being because insurance companies were charging too little, not because they were charging too much. The states were worried that because the insurance companies were paying too little, they wouldn't be there when the losses occurred and they wouldn't have the money.

[00:47:36] Speaker 1: So you're saying the primary function of regulation is to make sure the insurance companies are in a position to pay off when that time arrives.

[00:47:43] Linda Gilchrist: Correct.

[00:47:44] Speaker 1: Okay. Well, Beverly, thank you for your call. Let's go to Dick Miller who uh is from KaniaOhe, but he's also my office neighbor down at the law school. Good morning, Dick.

[00:47:52] Dick Miller: Good morning, Randy and good morning uh Linda and Senator Ikeda.

[00:47:57] Donna Ikeda: Morning. Good morning.

[00:47:59] Dick Miller: I think uh uh we ought to note that the reason uh there is regulation of the insurance industry is because uh under federal law, it is the only industry aside from baseball that has an exemption from the antitrust laws. So, uh uh state regulation is all there is. There is no federal regulation.

[00:48:18] Speaker 1: Dick, let let me ask Linda a question about that. Linda, does that mean that without violating uh antitrust laws, the insurance companies could get together here in Hawaii and decide as a group what they would be charging for insurance if it weren't for regulation?

[00:48:35] Linda Gilchrist: Um, absolutely no way. As a matter of fact, insurance companies are very restricted as to what information they share amongst themselves. And we, you will not find insurance companies sharing any rate information amongst themselves.

[00:49:00] Speaker 1: So you feel that that if uh government wouldn't rate or regulate the price of insurance that it would be competitive, notwithstanding this federal law that Dick is referring to.

[00:49:02] Linda Gilchrist: Correct.

[00:49:03] Speaker 1: Okay. Dick.

[00:49:04] Dick Miller: Well, I think still that the the way insurance rates are made and the use of the ISO, they do share information.

[00:49:10] Speaker 1: What's ISO?

[00:49:11] Dick Miller: The uh uh what is it, Insurance Services Office.

[00:49:14] Linda Gilchrist: Insurance Services Insurance Services Office. But Dick, we share we share loss information. And that's that is very important in setting rates. We have to know what happened to us in the past in order to tell what kind of premiums we need to charge for the future. But that is something that is completely different than sharing rates premiums.

[00:49:37] Dick Miller: Well, I think it ends up it feeds into the into the system. It's a big part. It's a big part of the equation, right, Dick? Right. Absolutely. I'm I'm I'm also wondering, what what is the regulation now in Hawaii of rates? I don't they file uh their rates in the and uh unless someone vigorously complain complains that they're discriminatory or they violate some law, they have the whatever rates they file, right?

[00:50:01] Linda Gilchrist: Well, that's what we had before 1992. Right now, we have to file for approval on any rate change and the uh insurance division has to approve it. It also has to go through a hearing process.

[00:50:13] Dick Miller: Have have any of them been turned down yet? Do you know?

[00:50:16] Linda Gilchrist: Oh, sure. Insurance uh filings are turned down all the time.

[00:50:19] Dick Miller: Uh auto insurance?

[00:50:21] Linda Gilchrist: Well, the interestingly enough, since 1992, there haven't been all that many auto filings. And um you know, that's probably a whole story all of its self. But insurance companies since the 92 reforms, um insurance, auto insurance has been um much better for the insurance companies uh and rates have not had to increase, so there haven't been that many filings.

[00:50:46] Dick Miller: And and isn't it the fact that uh even the State Farm and its uh uh pursuing uh uh pure no fault, which I think is a disaster uh uh has itself uh put uh agreed to a 45% mandate of reduction. So it's the insurance company that seems to be willing to go along with that.

[00:51:05] Linda Gilchrist: Uh State Farm did make that public announcement last year with that bill that was passed last year.

[00:51:12] Speaker 1: Dick, thank Go ahead.

[00:51:14] Linda Gilchrist: But you know, that's what I'm saying. State Farm came out and said that for a particular bill, they could go 45%. Another company might not be that lucky or might have been able to go more if you know, were it not for uh regulation of this kind.

[00:51:28] Donna Ikeda: That was a minimum. 45% was really a minimum. It probably would have gone higher and State Farm wasn't the only company that came in saying that they would do it.

[00:51:37] Speaker 1: The discount would have gone higher or the savings would have gone higher. Right. Okay. Um, Dick, I I know you'd like to debate that, but that's another show we're going to have uh in a month or two. Uh thanks for calling in. We're we're going to have to move on so we can get to our other callers. Thank you, Dick.

[00:51:52] Dick Miller: Thank you Randy. It's been interesting. Okay, let's go to Scott in uh Kapahulu. Good morning, Scott.

[00:51:56] Caller: Good morning. Uh, I'm uh the executive director of a new organization in Hawaii called Advocates for Consumer Rights, and we're we're a group of uh consumers who have been studying the insurance issues for several years. Um, so we we've got some perspectives from the consumer perspective. Number one, a 45% we try to make this point last year, a 45% reduction in rates is not necessarily a 45% reduction in premiums. Those two words should not be used interchanged. Um,

[00:52:26] Speaker 1: Scott, I'm I'm going to let you go on, but I I know you and I have talked, I know that that you could spend a lot of time addressing this topic, try and try and pack it real tightly and uh. I got real tight. Okay.

[00:52:38] Caller: Okay. Uh regulations on the books and regulations in force are two different things. When Ralph Nader was here and addressed the legislature last April 11th, he said he was he'd have a hard time finding a smaller insurance commissioner's budget in the United States that uh if the legislature was sincere about making reforms, they would give uh Wayne Metcaf the new insurance commissioner an adequate budget to do his job. Otherwise, as Mr. Nader described it, it is a benign deceit on the public. Thank you.

[00:53:11] Speaker 1: Thank you, Scott. Well, I'd like to comment on this.

[00:53:13] Donna Ikeda: This is Donna Ikeda. Um, I think that what people fail to realize is that the insurance commissioner has a special fund and he has the authorization to assess companies and set that assessment and for the most part, no fault insurance is regulated uh the cost of of regulating no no fault insurance comes from that fund. Now, there's very little oversight of that fund by the legislature and for the most part, if the the cost, I mean, if if the costs are higher and the insurance commissioner needs more money, then he has the ability to increase that um allocation. So in essence, what's happening is that the insurance companies are actually paying for their own regulation.

[00:53:59] Speaker 1: Okay. Linda, you have any thoughts to share on that?

[00:54:01] Linda Gilchrist: No, that's correct.

[00:54:02] Speaker 1: Well, we're down to to the last four or five minutes and I like to give our guests, and I always run out of time and so uh you we have a luxury of of a few extra minutes um to add anything that hasn't been said, or to uh maybe elaborate a little bit on something that we got over a bit too quickly earlier in the program. Um Linda, anything you'd like to add or or to emphasize?

[00:54:27] Linda Gilchrist: Well, you know, I I think we've covered the subject fairly well. I'll I'll just summarize with saying, it's not that we're against regulation. Uh that's not true. We understand that uh because of the kind of industry that we are, that we have to have the regulation. That's in the public's best interest. It's just that I think just like the government needs to take a look at everything that it's doing these days, which is the same thing that private industry is doing, uh that we need to take a look at all of the regulation and make sure that we're getting our money's worth and it's really necessary. In the area of rate regulation, um I think we could pass on that. We had a state auditor's report just a couple of years ago that recommended that we look at being competitively rated, and I think she Mary and Higa was right on and that it's time to go in and investigate it.

[00:55:21] Speaker 1: Very quickly and I know you could talk about this a lot, but other states that don't have price regulation the way Hawaii has price regulation, what's their experience been?

[00:55:32] Linda Gilchrist: Ah, actually, it's very good for the consumers. Take a look at Illinois, which has had competitive rating the the longest since 1972. Uh you never hear of them being in the top five or 10 for having the highest auto insurance rates. As a matter of fact, they're right in the middle. I think they're 25th.

[00:55:49] Speaker 1: And Hawaii's right at the top, or Correct. Real close.

[00:55:53] Donna Ikeda: Anything about that or anything that we've talked about during the hour you'd like to emphasize or add to? Again, understand, Hawaii is a lot smaller than Illinois. And remember what Linda said earlier about about rates being set by the experience in the particular area. You've got a large population, you've got a larger base, then the risk is spread over a number a greater number. That's not the case with Hawaii and we are a captive market. And and that's part of our problem. And again, I will say that if insurance companies want less regulation and they want more competition, they won't get an argument from me as long as they will agree that they will stay in business in this state and not run every time there's a problem. Because that's been the experience and that's the only reason why the legislature gets gets involved. Believe me, we would rather not deal with these problems.

[00:57:00] Donna Ikeda: I'll I'll just close with saying I don't think we always run. We stayed in Niki. We paid our losses and that's what we were here for and that's what we did.

[00:57:09] Randall Roth: Okay. Well, I want to thank my guest, Donna Ikeda, the current chair of the Senate Ways and Means Committee, who has chaired the committee on consumer protection in the past, and Linda Gilchrist, an executive vice president with AIG Hawaii Insurance Company, Inc. Our producer is Susie Roth. Our technical assistant this morning was Philip Hutchinson. We hope you will listen next week when we're going to be talking about the size of government in Hawaii. You know, there are a number of people who are quoted in the press frequently who seem to think that government in Hawaii is too big, that we have too many government workers. Well, I've found an economist with excellent credentials who thinks otherwise, and I think we're going to have a very interesting conversation.

[00:57:32] Randall Roth: You know, there are a number of people who are quoted in the press frequently who seem to think that government in Hawaii is too big, that we have too many government workers. Well, I've found an economist with excellent credentials who thinks otherwise, and I think we're going to have a very interesting conversation. Fella by the name of Bill Boyd, who's with the Center for Labor Education and Research at the University of Hawaii, and Paul Lyster, formerly with the Chamber of Commerce in Hawaii, are going to be here next Sunday morning, and I guarantee you it's going to be an interesting conversation. Thank you for joining us this morning. Aloha.