The Insurance Mess: What Now?

The California electorate has thoroughly repudiated the insurance industry, rejecting its pet measures by stunning margins and adopting Proposition 103, the Ralph Nader-backed rate-rollback measure that the insurers, sparing no expense, tried so hard to defeat. And yet the insurers, like punch-drunk boxers, are struggling to their feet and vowing to fight another round--this time in the courts.

All indications are that Round 2 of the insurance wars will be as bloody and brutal as Round 1. Unable to defeat all the opposition measures even with a $70-million campaign of distortion and deception, the insurance companies are marshaling their considerable resources--or, should we say, their policyholders’ resources--in hopes of a judicial knockout. And, sad to say, we fear that Proposition 103 is so deeply flawed that the insurers this time may accomplish what they could not do at the polls.

Although well-intentioned, Proposition 103 has all the finesse of a meat cleaver. It would immediately slash insurance rates 20% from 1987 levels, freeze them for a year, then require a 20% discount for safe drivers. For insurers, Proposition 103 means an immediate 35% loss in revenues, a set-back so great that some would face insolvency; ironically, the most vulnerable firms are the smaller, California-based companies that already operate efficiently and gouge consumers the least. And the mandated cuts would affect other lines of coverage, like homeowners’ insurance, in which rates are acknowledged to be more competitive than auto insurance. It is with some justification that auto insurers are arguing in petitions to the state Supreme Court that the rollbacks required by 103 are confiscatory and unconstitutional.

Our sympathies lie not with the insurers but with the 4.6 million Californians who voted for Proposition 103 because they need affordable auto insurance. If the Supreme Court does not strike down the rate rollbacks, the chances are that Insurance Commissioner Roxani Gillespie will exempt the insurers whose survival is threatened; Gillespie has pledged to enforce 103, but it explicitly grants her the authority to excuse companies pushed to the brink of insolvency by roll-backs. Either way, many Californians may never see any reduction at all in their premiums.

Although the Supreme Court has been asked to void all of Proposition 103, some provisions may be salvaged. The court could save the sections that pass constitutional muster--including, we hope, the regulatory system that requires the industry to justify future rate increases and that bases rates primarily on the driver’s own safety record rather than his address.

The future of auto insurance in this state depends on several officials who opposed Proposition 103, including Gov. George Deukmejian, Atty. Gen. John K. Van de Kamp and Gillespie. Van de Kamp has announced that he will enforce it and will defend it in court against the insurers’ challenge. But Deukmejian and Gillespie also should spell out the steps that they are taking to implement the will of the people.

And, at the risk of sounding Pollyannaish, we would hope that the insurers might also try to understand the lessons of Tuesday’s election. Court challenges may be necessary because ofthe insurers’ duties to their own stockholders, but if the insurers want to flourish in this state they also must overcome widespread public hostility. And the best way to do that would be to use their leverage in the Legislature to pursue a balanced no-fault bill or some other cost-cutting system that would make it possible for insurers to afford the rate reductions demanded by the voters. But if the industry continues to be obstructionist, if it follows the rabbit-punching, eye-gouging, below-the-belt tactics of this initiative campaign, it deserves to be treated like a sore loser.