Rather Than Fighting 103, Insurers Should Seize the Chance It Gives Them

It has been a difficult five months since voters approved Proposition 103, the insurance-reform initiative backed by Voter Revolt and consumer advocate Ralph Nader.

While 103 has ignited similar efforts throughout the nation, Californians still await a decision from the state Supreme Court on legal challenges by the insurance industry. The proposition’s 20% rate rollback and freeze, intended to take effect on Election Day, remain on hold; in the meantime, many insurers have boosted their rates, some by as much as 60%. Other companies flout procedural safeguards in Proposition 103 that prohibit discrimination, arbitrary cancellations and require applications for rate increases.

Presumably, the Supreme Court will undo the damage done by this spiteful misbehavior when it issues its decision. Then the proposition’s reforms will kick in, dramatically reducing rates by making the industry pay attention to costs and safety.

Insulated for four decades from both competition and regulation, insurers have become addicted to a staggering degree of waste, inefficiency and profiteering. Today, a third of every auto insurance dollar we pay goes to overhead, salaries and profits. (By comparison, public utilities spend about 5 cents on the dollar for administrative expenses).

Proposition 103 ends the “cost is no object” attitude that has turned insurance companies into extravagant bureaucracies. The premium rollback will negate huge pre-election increases and reduce excessive auto, homeowner and business rates to justifiable levels. Like a crash diet, it will force companies to trim.

Then, beginning in November, insurance companies will be permitted to raise their rates. But, under Proposition 103, they’ll first have to open their books to justify such increases. This will allow the insurance commissioner to closely scrutinize the operations of insurers and penalize companies that do not institute cost control and loss prevention programs.

Under Proposition 103’s rollback and regulation, insurers will have a powerful incentive to promote accident-prevention technologies, curb health-care and car-repair costs, and crack down on the doctor-lawyer syndicates that milk the system by exaggerating injuries and submitting duplicate medical claims under auto and health policies. Safety measures could cut rates significantly. A study by Public Citizen, Nader’s Washington-based organization, found that insurance companies could reduce injury costs by 25% simply through insisting on auto safety improvements by auto manufacturers and tougher enforcement of highway and drunk-driving laws. Imagine the deaths and injuries that would have been prevented had insurers spent $79 million last year to push for auto and product safety instead of using that sum to oppose Proposition 103.

Unfortunately, insurance companies show little interest in becoming safety advocates. Rather than work to reduce costs and accidents, insurers want to reduce the amount of compensation they have to pay to legitimate accident victims.

The industry has launched a national public relations campaign--at a reported cost of $90 million--to promote “no fault” and other compensation restrictions as alternatives to Proposition 103-type reforms. Though California voters overwhelmingly rejected such proposals last November, insurers plan to push “no fault” in Sacramento, where their lobbyists still dominate a surprising number of legislators.

A few community groups, unwilling to wait for Proposition 103’s reforms to take effect, are also considering plans to restrict consumer rights. One San Francisco organization has proposed a cheap, “no frills” auto policy that would cover neither property damage nor physical pain and suffering. Though superficially enticing, this would create a two-tier system of justice in which the poor are forced to trade away their legal rights (the “frills”) in exchange for policies that may--or may not--cost less. Like the industry’s approach, this scheme dumps the burden of insurance reform back on the consumer.

Scholars can differ on the merits of “no fault” or “no frills” policies. But it would be folly to seriously consider such proposals until Proposition 103 is fully implemented. Only then will insurers be required to disclose the data that policy-makers need in order to evaluate whether rates would indeed go down if society chose to sacrifice legal protections.

The success of many of Proposition 103’s reforms lies in the hands of Insurance Commissioner Roxani M. Gillespie, a former insurance executive appointed by Gov. George Deukmejian in 1986. Both opposed Proposition 103. Yet, as the proposition requires, both must enforce it.

So far, the commissioner’s performance has been disturbing. In a few high visibility cases, Gillespie has browbeaten several insurance industry executives for raising rates and arbitrarily canceling customers. But it seems to be a different story when the TV cameras leave. She has repeatedly refused to obey Proposition 103’s public- hearing requirements, held secret meetings with industry officials and has done nothing about the dozens of other companies disobeying the voter mandate. Moreover, Gillespie has yet to implement key reforms that will go into effect in November, such as establishing the rules under which auto insurers must first consider a motorist’s driving-safety record when setting premiums.

Gillespie’s failure to enforce Proposition 103 could become a major issue in the 1990 elections. This would be unfortunate, since the measure was supported by a bipartisan majority. Deukmejian should now stand up to support the public’s solution to it.

Insurance companies also have a self-interest in making sure Proposition 103 works. Their arrogant and abusive tactics forced voters to take matters into their own hands. Now, insurers have another opportunity to cooperate with, rather than defy, the public.

This may be their last chance. Every night, in dozens of cities throughout California, Voter Revolt staffers knock on the doors of citizens, asking their support for our work. Outrage at the insurance industry’s post-election behavior has surpassed anything we saw before Election Day. It is clear that if insurers don’t comply with Proposition 103 during the next few years, the electorate is prepared to take more drastic measures. At stake for the industry is its privilege to serve the California public.