Home Buyers, Car Dealers Fret Over Prop. 103
Some home buyers Thursday suddenly found themselves unable to get new homeowners insurance and car dealers fretted that auto insurance might dry up as insurance companies reacted to the passage of Proposition 103.
Lenders generally will not finance the purchase of a home or automobile until consumers have obtained insurance to protect the property against fire, theft or other damage.
“It’s disrupting everything,” said Lola Levoy, who owns the Beverly Hills Escrow Co. She said she knew of several real estate deals that have not closed because of 11th-hour problems in obtaining insurance. “We are not closing escrows. . . . It’s affecting every part of the real estate industry. It’s not a pretty sight.”
Some insurance companies have withdrawn from the California market and others have stopped writing new policies in the wake of Tuesday’s passage of Proposition 103, which rolls back insurance rates.
The state Supreme Court on Thursday blocked implementation of the measure while the justices decide whether to review claims made in lawsuits by the insurance industry that the initiative is unconstitutional. But the confusion over its impact continued within sectors of the business community.
“Most of our (insurance) carriers are no longer accepting any new general business,” said Bob Borisoff, president of Speare & Co., a firm in Santa Monica that brokers auto and homeowners insurance.
Sponsored by consumer advocate Ralph Nader, Proposition 103 was one of several insurance initiatives on the ballot, but it was the only one that passed.
Although most of the public attention on the insurance initiatives focused on auto insurance, Proposition 103 calls for price rollbacks on a wide range of insurance products, including those for homeowners. Prices would be rolled back 20% from the prevailing rates of Nov. 8, 1987.
Only now is the full impact of the measure starting to sink in, and it has begun to send ripples of uncertainty and confusion through the mortgage lending industry and general public.
“I think everyone had the impression that Proposition 103 was just for auto insurance,” said Ira Cohen, a senior executive with ARCS Mortgage, a large home lender based in the San Fernando Valley. ARCS Mortgage has already notified its field offices to brace for problems in closing loans.
“I don’t see a quick fix--unless we can get Ralph Nader to write insurance,” cracked H. Collyer Church, underwriting counsel for World Title, a large title insurance company in Burbank.
“I don’t have a handle on how big the problem is,” Church added, “but I think it’s pretty universal.”
Santa Monica attorney Thomas Nitti pointed out that current homeowners also may face a serious problem if insurance companies refuse to renew their policies.
“Lenders won’t fund the loan until the insurance is in place, and if the insurance policy expires without a new policy coming on, that gives the lender the right to foreclose,” Nitti said.
Auto Dealers Fearful
As with homes, auto lenders will not finance a new car unless insurance is in place to protect the lender’s investment. So the potential looms for big problems down the road because two out of every three new cars are financed.
Some car dealers said in interviews Thursday that they were afraid they would lose sales because customers would be unable to obtain insurance if a large segment of the insurance industry abandons California, as some companies have threatened to do unless Proposition 103 is thrown out.
Their fears have not been realized yet, at least partly because California law allows car owners automatically to transfer existing insurance coverage to a newly purchased car. But there are fears, nonetheless.
“One dealer called in yesterday morning in a panic over the potential loss of business,” said Robert H. Harnar, public affairs manager for Ford Motor Co.’s Western region. “So we surveyed several dealers. Nobody else saw any problem. Sales don’t seem to be affected by whether or not you can buy insurance because most people have existing insurance that they can transfer to the new car.”
Added Shea Shafer, general sales manager at Galpin Ford in Sepulveda:
“It hasn’t done anything to impair our business yet. The majority of people coming in are not writing a new policy. The majority of people have insurance on the car they are trading in or they are adding a second car to an existing policy. The problem may come for people who don’t have insurance, but we just haven’t run into that yet. I’m sure that it will run into an impact, particularly for people who haven’t had insurance before.”
John S. Andrews, the chief spokesman for the nation’s largest auto financing company, General Motors Acceptance Corp. in Detroit, expressed concern that a broad lack of insurance could cut sales.
Since GM and other auto makers often finance the sale of substantial percentages of their own cars, the possible loss of business would have a double impact.
“This is a situation that we are watching very closely,” Andrews said. “I don’t think that it’s going to hold just to the state of California if it goes through. I don’t know what the impact is going to be, but there is going to be one if this thing is upheld. You’ve got to have insurance to finance a car. If no one is writing insurance in California, I don’t know what’s going to happen.”
