Insurers Cite Causes for High Auto Policy Rates

Californians pay higher auto insurance rates than the nation as a whole because of urbanization, lawsuits, auto theft rates, medical costs, rampant fraud and other factors, insurance industry officials contended Wednesday.

Such causes, however, are not addressed at all by Proposition 103 but must be dealt with to keep auto insurance rates down in the long run, the officials told a state Senate hearing in Los Angeles.

“Put quite simply, the frequency and average cost of auto accident claims are much higher in California than elsewhere,” Edward Levy, general manager of the Assn. of California Insurance Companies, said in a prepared statement presented to the state Senate Committee on Insurance, Claims and Corporations.

“Price controls enacted without regards to reducing costs” will only reduce the supply of insurance in California as insurers will leave the state, said Bud Wilson, a Chula Vista insurance agent representing a coalition of three agent and broker organizations in the state.

The presentation by industry officials Wednesday is part of their effort to focus attention on the root causes of high auto insurance rates--which have more than doubled in the last decade--and to criticize Proposition 103 for failing to address them.

The statements also were meant to prod legislators to act on meaningful reforms now that Proposition 103, if upheld by the state Supreme Court, will force insurers to cut premiums by at least 20%.

“An awful lot of legislators realize the unique kinds of problems that California has, but there is just not a consensus as to what to do,” Levy said in an interview after the hearing.

The causes of higher rates in California, as cited by Levy, include:

- A more urbanized population, with people more dependent on their autos for everyday activities. Nearly 85% of California’s cars are located in urban areas, versus 52% nationwide. The frequency and average cost of claims is substantially higher in urban areas, Levy said.

- A higher proportion of insured small cars (44% of the total) than the nation as a whole (32%). Small cars consistently have more injury and collision claims than large cars, Levy argued.

- More insured sports, specialty and luxury cars in California (22%) compared to the nation (15%). Those cars are more expensive to insure and more likely to be stolen.

- The highest number of auto thefts in the nation--83% greater than the next highest state, New York. California’s location makes it easier to drive stolen vehicles to Mexico, where they can easily be stripped for parts.

- More litigation. Bodily injury claimants in California file more than twice as many lawsuits as in other states without no-fault laws restricting such actions. Further, 50% more claimants are represented by a lawyer in California than in comparable states. And insurance payments for subjective damages such as pain and suffering are 42% higher in California than in other states.

- Higher medical bills. Hospital and other medical payments in auto accident cases are 72% higher in California than in other states without no-fault. Also, Californians are more likely to make claims for injuries that aren’t serious enough to require hospitalization.

- Rampant insurance fraud, costing consumers an estimated $500 million to $1.5 billion a year.

As for solutions, industry officials generally reiterated their support for no-fault legislation that would cut legal costs by limiting the ability of claimants to sue, except in cases involving death or serious injury.

Consumer advocates, however, contended Wednesday that the insurance industry must accept some blame for higher costs, because they have not done enough to fight them.

“Auto insurance companies are content to pass those costs along” to consumers in the form of higher premiums, said Steven Miller, executive director of the Insurance Consumer Action Network in Los Angeles, in an interview after he testified before the committee.