Iowa Considers Law to Bar Hikes After Prop. 103

Iowa has become the first of possibly several states considering legislation or regulations that would prevent insurance companies from raising auto insurance rates in their states in order to recoup possible losses in California due to Proposition 103 rate rollbacks.

Such moves, if enacted, could bolster attempts by some insurers to pull out of California’s auto insurance market. Iowa’s insurance division, for example, has drafted a proposal that would require insurers operating in that state to pull out of California or any other state in which they operate at a loss.

“Iowans enjoy the lowest auto premiums in the nation, and I don’t intend to stand by while Iowans are forced to subsidize rate rollbacks in another state,” Iowa Insurance Commissioner William Hager said in a statement released Tuesday in New Orleans at an annual meeting of state insurance commissioners.

The Iowa action was cited by insurance industry executives Wednesday in testimony before a state Senate hearing in Los Angeles as an example of the negative effects of Proposition 103, the constitutionality of which is under review by the state Supreme Court.

Some consumer advocates suspect that insurers may have raised rates in relatively unregulated states to recoup losses from such heavily regulated states as New Jersey. Attempts by insurers to do so could bolster efforts by consumer advocates to win support for Proposition 103-type measures.

“Consumers in other states should be careful to make sure companies don’t attempt to take advantage of (them),” consumer advocate and Proposition 103 author Harvey Rosenfield said Wednesday. He also questioned the assumption that Proposition 103 would force insurers to operate at losses for a long time, noting that the 20%-plus rate rollbacks mandated by the initiative last for only a year, after which companies can request rate hikes.

Other Midwestern states are said to be likely to consider actions similar to Iowa’s. Auto insurance rates in those states tend to be lower because a relatively large percentage of drivers live in low-accident rural areas.

However, rules requiring pullouts from states like California could be difficult to enforce. They also may conflict with regulations in California and other states that restrict the ability of insurers to withdraw. Current California insurance law, for example, prohibits auto insurers from leaving the state unless they transfer existing policies to other insurers who agree to honor the policies.