Consumer Approach to Insurance Reform : Regulation Points the Way to Realistic Driver Protection

Auto-insurance prices go through the roof with no state control and no federal or state prohibition on price-fixing; policies are written that no one can understand; good drivers are unable to find reasonably priced insurance that the state requires them to get; the abuses go on and on.

As you listen to the hype on the insurance initiatives on TV, it is reasonable to ask yourself: How in the world did we get into this insurance mess, and what will my vote mean on Nov. 8?

The reason we are in this mess is the same reason insurers can afford to spend a remarkable $43 million supporting propositions against the interests of California’s consumers. Money!

Money invested in the most powerful lobbying force in each state of the Union and one of the biggest in Washington has succeeded in frightening off insurance reform from coast to coast. And the cost of this huge lobbying effort--including the $43 million insurers are spending on Proposition 104--is paid for by consumers. Insurance companies simply pass it on in your premiums and no state stops them. Each time you view one of their ads, remember that the cost is coming out of your pocket. If nothing else convinces you that this industry needs reform, their ad budget should.

Using your money, insurers have been able to buy all sorts of advantages in Sacramento and Washington, including:

--A remarkable exemption from antitrust law enforcement both nationally and in California (meaning that giant insurers like Prudential and Aetna can agree on the prices they charge you for auto insurance, but two corner grocers can’t make an agreement on the price of lamb chops).

--A total lack of federal regulation. Not only is no federal agency authorized to regulate insurance, the Federal Trade Commission is not even allowed to study it.

--A total lack of state regulation to protect you from price-gouging.

Insurance never was subject to antitrust laws. In 1944 the U.S. Supreme Court reversed its older rulings and declared insurance to be subject to federal antitrust laws. Insurers immediately went into action by asking President Franklin D. Roosevelt to exempt them. He initially refused, but agreed to a brief moratorium on antitrust enforcement. When the House and the Senate conferred on legislation, a permanent moratorium emerged. As the President signed the bill, he said that “Congress did not intend to permit private price-fixing” yet we still have unregulated auto-insurance price-fixing in California today.

Californians face an insurance initiative struggle only because the Legislature refused to act on pro-consumer legislation that was before them for several years. Bill after bill has been killed in the face of millions of dollars of insurance industry political contributions.

Commissioned by the California Legislature to do a major study of auto insurance in 1985, the National Insurance Consumer Organization delivered a report a year later that found $200 million in excess industry profits. The study also included many of the proposals embodied in the current initiative, Proposition 100. Yet some of the same legislators who commissioned the 1986 study attacked us for delivering it. Why? Perhaps because they received hundreds of thousands of dollars of insurance money in the interim.

It’s not just California that has buckled under; insurance regulation is notoriously weak throughout the nation. At the last annual meeting of the state regulators this sorry trend reached a new low. The National Assn. of Insurance Commissioners meeting was chaired by the Maryland commissioner-- after he had announced he was going to work for an insurance company. Business as usual in insurance.

So there you are--as you suffer through the endless ads this fall, remember this: You are in the midst of the greatest action by consumers pertaining to insurance in the history of this nation. Insurance companies that don’t even write policies in California are sending money to the insurer campaign because they recognize the national significance of your vote.

The insurance company “wish list” embodied in Proposition 104 must be overwhelmingly rejected or your rates will skyrocket.

The National Insurance Consumer Organization urges a “yes” vote on Proposition 100 and “no” on all other insurance initiatives. Proposition 100 puts you, the good-driving, auto-insurance consumer, in the driver’s seat with a rate cut of at least a 20%, computerized comparative price information and guaranteed available basic insurance on any vehicle for which a good driver is the principal operator. Proposition 100 also stops price-fixing, regulates insurer rate increases and creates a post for a consumer advocate to fight for you.

Other than Proposition 100, the only non-insurance company proposal is Proposition 103, which has some very good elements but contains some unreasonable provisions, such as requiring that insurance companies face a substantial threat of insolvency before they may be allowed to raise rates during a freeze.

Proposition 100 has the right balance--tough protection for consumers without threatening legitimate insurer business interests.

Politicians lust for money for one reason--to get votes. A resounding win for Proposition 100 will send a simple message to politicians in Washington and in every state capital: It is good politics to reform this huge and unregulated industry. The nation is again looking to California for innovation and leadership in securing something new--insurance companies that serve America rather than the other way around.