Questions and Answers on Prop. 103’s Effect on Insurance

Q: What are the provisions of Proposition 103 and when will they take effect?

A: Proposition 103 should roll back rates immediately on a wide variety of auto, property and casualty insurance policies by 20% from the level existing on Nov. 8, 1987. So, if your auto insurance cost $1,000 in 1987, it should be rolled back to $800 under Proposition 103--even if your rates had been raised to more than $1,000 during the last year. After the rollback, rates should be frozen for one year.

Q: When will I actually see a cut in my premium? Shouldn’t that be happening now?

A: The rollback should take effect on your next premium. Atty. Gen. John K. Van de Kamp said Wednesday that if you do not see the reduction on your next premium you should should contact the state insurance commissioner.

But the insurance industry has asked the California Supreme Court to stay the provisions of Proposition 103 until a court can rule on the insurance companies’ claim that the measure is unconstitutional.

Some companies said Wednesday that they will continue to charge the old rates and hold the difference in an escrow account, pending a decision by the high court.

If Proposition 103 is upheld eventually, policy holders may receive cash rebates and perhaps even interest from their insurance companies. But the court battles could take months or even years.

Q: Is there any chance that my existing policy can be canceled after its expiration date?

A: Possibly. Several companies that have threatened to leave the state because of Proposition 103 said they will not renew existing policies, but the state Department of Insurance contends that such cancellations are not permissible under the initiative.

Q: Is auto insurance the only kind of policy affected by Proposition 103?

A: No. The proposition affects all automobile, homeowners, commercial liability, municipal liability, malpractice and most other forms of property casualty insurance.

Q: What if I’m applying for insurance? Are companies still writing new policies?

A: Dozens of companies have suspended sales of new policies pending a court ruling on the constitutionality of Proposition 103, according to insurance agents. There are 700 companies offering property casualty insurance in California, including 400 that write auto policies. The 10 largest companies, including some of those who have now stopped selling auto policies, do more than 50% of the business.

Q: Can the insurance companies be forced to keep writing new policies?

A: Generally speaking, no. However, if many companies stop doing business in California, Proposition 103 has an emergency clause that empowers the state insurance commissioner to assign abandoned policyholders to companies remaining in the market.

Q: What happens while the insurance companies are involved in a lawsuit challenging Proposition 103. Will current rates be maintained? Will policies remain in force?

A: It depends on whether or not the Supreme Court issues a stay and what the terms of a potential stay are. A court order may affect only parts of the initiative. There are indications that current rates will be maintained during a stay.

Q: What if the insurance companies lose the legal challenge?

A: Some companies, such as Coastal Insurance, have already given notice that they will stop doing business in California.

Other companies are likely to ask the state insurance commissioner for relief under the “substantial insolvency” clause of the proposition. Under that clause, a company could be granted an exemption from the rollbacks if it can prove that it is losing too much money. The initiative is not clear as to whether that clause refers to a company’s total business or only its California business. If all this fails, insurance companies could stop doing business in California if it is not profitable under the new rules.

Q: Other than getting an exemption from the state, is there any way my insurer can escape rolling back my rates?

A: Some companies have said that they could attempt to switch their customers to out-of-state companies that may not be subject to the rollback provisions. But Van de Kamp has questioned whether that would be permitted. State Insurance Commissioner Roxani Gillespie has had no comment on the legality of such transfers.

Q: If insurance companies leave the state, how will I be insured?

A: If a few companies are left in the business, the insurance commissioner can require them to accept policies through a “joint underwriting authority” that would work something like the current assigned-risk auto pool. Gillespie has also suggested that if there are not enough companies left to carry all the business, it might be necessary for the state to form its own insurance company. Five Canadian provinces have such government insurance companies.

Q: What happens to rates after the initial rate rollback? Can insurance companies begin raising rates again?

A: After rates are rolled back and frozen for one year, insurance companies could ask the insurance commissioner for a rate increase. The insurers would have to justify their rate requests in formal hearings in much the same way as electric utilities seek rate increases from the state’s Public Utilities Commission.

In addition, any driver licensed for more than three years and having no more than one conviction for a moving violation, will be entitled to a 20% “good-driver” discount from the existing rates.

Q: How do I know if the insurance commissioner will be looking out for the consumer interest in approving rates.

A: Under Proposition 103, the state insurance commissioner will become an elected post in 1990. Currently the office is appointed by the governor. Proposition 103’s proponents contend that the elected commissioner would not be a stooge for the insurance industry because any candidate receiving campaign contributions from insurance interests would be receiving “a political kiss of death.”

Q: How can I find out what is happening with my policy?

A: Stan Zax, president of the Assn. of California Insurance Companies, suggested Wednesday that you call your agent. And Van de Kamp suggested that you contact the state Insurance Department.