Insurer denies predatory pricing charge

Wednesday, April 8, 1998 | 11:46 a.m.

CARSON CITY -- Gem Insurance Co., which sold 18,000 health insurance policies to individuals and businesses during an aggressive marketing campaign, has pulled out of Nevada after being accused by the state insurance commissioner of "predatory pricing."

Insurance Commissioner Alice Molasky-Arman told a legislative committee Tuesday that Gem used an unfair trade practice called low balling to sell benefit-rich policies for prices far below market value.

"It was a bargain too good to be true," Molasky-Arman told the Legislative Committee on Workers Compensation. "The insurer later compensates for these practices by significantly raising its premiums at the earliest opportunity with a somewhat captive insured population."

In Gem's case it sought an 80 percent increase in premiums, Molasky-Arman said.

Molasky-Arman said when she agreed only to a 30 percent rate hike, Gem threatened to pull out last July. She said state law prohibited the company from leaving the state for up to 180 days.

Gem's departure gave other insurance companies a chance to pick up its about 18,000 Nevada customers. Blue Cross Blue Shield of Nevada has offered to insure at higher rates the remaining 8,000 Gem policy holders who have yet to find another carrier, Molasky-Arman said.

Gem spokeswoman Elizabeth Kosztolnyik denied the Salt Lake City company engaged in predatory pricing as charged by the insurance commissioner.

Kosztolnyik said there were "massive changes in the market that made the low cost unrealistic." She said, "It would have forced us to raise our rates." After considering this, the company decided to withdraw.

"Gem was under no statutory obligation to provide coverage for the policy holders," she said. "But they (Gem) were concerned and they decided to work on behalf of the policy holders to guarantee they had coverage."

Many of those 8,000 were uninsurable because of prior or existing illnesses. Gem paid Blue Cross Blue Shield "an amount of seven figures to cover the cost of known severe health conditions," Molasky-Arman said.