An Even Messier Mess
In the two weeks since Californians adopted Proposition 103--the initiative that Ralph Nader, Harvey Rosenfield and other consumer activists said would dramatically lower auto-insurance rates--the average cost of insuring a car has gone up, not down. At last week’s California Senate hearing on insurance, a representative of the state’s insurance agents testified that rates had climbed 5% to 10% since Election Day. As the insurance crisis deepens, frustrated Californians may wonder--with some justification--whatever happened to the generous rollbacks and discounts that they were promised.
It’s easy to blame the insurance companies, which these days rank somewhere between Lex Luthor and Dr. No on a scale of imagined villainy. State Sen. Alan Robbins (D-Van Nuys), who chaired last week’s hearing of the Senate committee on insurance, claims and corporations, led the attack on the insurers, accusing them of using “all the tricks of their trade” to subvert the will of the electorate. There’s no question that the insurers have been the prime players since Election Day. They have tied up Proposition 103 by challenging its constitutionality in the courts. The most responsible companies have petitioned the insurance commissioner for exemption from Proposition 103, arguing that rolling rates back to last year’s levels and slicing premiums by another 20% will drive them out of business; the initiative explicitly excuses companies that face insolvency. Other insurers--Robbins called them “the bad guys”--have stopped selling auto insurance altogether or have switched new policyholders to subsidiaries that specialize in bad risks and high premiums.
And yet blaming this crisis on the insurers alone strikes us as demagogic. The Legislature, whose prolonged inaction and inability to face this issue made reformers resort to the initiative process, is equally responsible. Despite the overheated rhetoric of the Senate hearing, the insurers’ concerns about their financial health under Proposition 103 cannot be dismissed as pure fantasy. Both Standard & Poor’s and Moody’s Investors Service, Wall Street’s two leading rating services, have warned that the rollbacks mandated by Proposition 103 threaten insurers’ solvency and credit ratings. That prospect should sober even politicians who see some gain in publicly flogging the insurance industry, and it should send them scrambling to find some constructive way out of this mess.
Instead, what Robbins and company propose to do may aggravate the crisis. With state Senate President Pro Tem David A. Roberti (D-Los Angeles) and Sen. Daniel E. Boatwright (D-Concord), Robbins will introduce legislation that would force insurers attempting to abandon the California market to renew existing policies and to pay any higher premium costs that their customers encounter when switching to other companies. In addition, the companies could be slapped with huge fines--up to 50% of their statewide premium income. The schedule laid out by Robbins suggests that this benighted approach will be the focus of his committee’s work, and perhaps of legislative debate, for the next three months.
We find ourselves agreeing with state Sen. Ed Davis (R-Valencia), who questioned both the constitutionality and the wisdom of Robbins’ bill. Like Davis, the lone voice of reason at an other wise raucous five-hour hearing, we doubt that the state can force an insurance company to stay in business against its will. Davis also was correct in urging his fellow legislators to find some way to cut insurers’ costs and keep them in business if the California Supreme Court upholds the rate rollbacks of Proposition 103. Fashioning a long-term solution for California’s insurance crisis, either through no-fault insurance or a mandatory arbitration system, is what the Legislature should have on its agenda in the coming months. Showy hearings and shrill denunciations of the insurers may land the Legislature on the network news, but they’re a waste of everyone’s time.
