Despite 103, Insurance Needs a Legislative Cure : Proposition’s Regulation and Rate Cuts Are a Start, but No-Fault Will Be Needed

<i> Judith Bell is the director of special projects for the West Coast regional office of Consumers Union</i>

Three cheers for California voters! Despite a $70-million campaign by the insurance companies, voters sifted through the ads and mailers and voted for insurance reform. They put their trust in the nation’s consumer leader, Ralph Nader, and passed Proposition 103.

But, like a bad hangover after a long night’s party, the public will find the insurance headache still haunting them. Insurance companies are already pressuring the courts and regulators to save them from the mandated rate reductions in Proposition 103. The state Supreme Court on Thursday signed an order temporarily blocking the rate cuts. Some companies are threatening to leave the state. Others are setting up new companies trying to get around Proposition 103. Undoubtedly the industry will also race to the Legislature, demanding draconian changes to the tort system to cut back on the rights of accident victims.

In all these forums insurers will claim that Proposition 103 went too far and that the industry cannot survive under its provisions. Public officials and consumer advocates will have to work hard to ensure that the voters’ intent is implemented.

Proposition 103 enacts two important reforms. Regulation will require rate increases to be justified before they take effect. The removal of the antitrust exemption should inject needed competition into the insurance marketplace. These changes should curtail insurance-company abuses. But there are outstanding issues, like fraud and cost control, that need to be addressed so that rates are not pushed upward.


As the implementation fights drag on, time should be spent reviewing short- and long-term strategies to keep insurance rates low. The rollbacks in Proposition 103 will provide lower rates in the short term, but the automobile-insurance market still needs a change to control costs in the long term. A fair and balanced no-fault system would provide rate relief in the long term.

Voters did not reject the concept of nofault insurance when they rejected Proposition 104; they rejected the specifics of that particular initiative. Critics of Proposition 104 warned consumers that the initiative contained much more than a no-fault measure. They pointed to prohibitions against regulation, agent discounts and expansion of the antitrust exemption.

The specifics of the no-fault sections were shown to be unfair, giving insurance companies the upper hand with their policyholders. The initiative was so clearly a special-interest measure that the most expensive advertising campaign in U.S. history couldn’t win public support.

Several editorials mentioned that their opposition to Proposition 104 was not a renunciation of no-fault auto insurance. Rather, they urged that a good no-fault plan be enacted after Proposition 104 was defeated.


Other states have enacted controls on insurance-company costs that do not make unreasonable reductions in consumer rights. These states successfully combine regulation with a good no-fault law. New York is an example. It has a good no-fault system, prior approval of insurance-rate increases (similar to a provision in Proposition 103) and regulation of the fees that doctors may charge to treat accident victims. Under this system, rate increases for auto insurance in New York have been below the consumer price index.

New York’s system also places reasonable limits on attorneys’ contingency fees. This concept was not rejected by California voters; they found Proposition 106 to be another slanted insurance-company measure. The proposed limits were the lowest in the nation, applied to all liability suits (not just automobile cases) and affected only plaintiff attorneys. In fact, even as they expressed opposition to Proposition 106 and support for Proposition 103, many voters were concerned that some attorneys’ contingency fees are too high.

It is this message of the need for a balanced comprehensive solution that state legislators should heed when they return to Sacramento. Legislators should be prepared to be policy-makers, not dealmakers, and to craft a good no-fault system. That’s the logical way to ensure longterm rate relief.

As legislators craft this compromise they should refuse campaign contributions from any side. Politics should take a back seat to policy. We need an open process in which all parties affected are present--no more back-room deals in which the Legislature rubber-stamps an argument by the trial lawyers, insurers and others while consumers pay for it.

This issue will not go away. Legislators must prove that they can lead and that they can finish the job the public began on Election Day. The stakes are high. A good no-fault policy crafted in the Legislature could restore the public’s confidence in its elected representatives.