What Does Prop. 103 Approval Mean? Here Are Some Answers

Times Staff Writer

Will your insurance rates go down? Will you get a rebate? Can your policy be canceled?

Undoubtedly these and other questions are on the minds of many California consumers in the wake of the state Supreme Court’s decision Thursday to uphold virtually all of the provisions of Proposition 103. Here are some answers:

Question: What did the court rule?

Answer: The ruling allows insurance rates to be reduced 20% below November, 1987, levels and frozen until next November. But an insurer can offer a higher rate if it is approved by the state Insurance Department. The ruling affects a wide range of property, casualty and auto insurance, as well as commercial policies bought by businesses, towns and charities.


The court also let stand other provisions of Proposition 103, including restrictions on use of geographical rate-setting for auto insurance, a mandatory 20% discount for “good drivers,” veto power for the state over future rate increases, and the allowance of banks into the insurance market.

Q: Will I get a rate rollback and rebate?

A: Don’t expect a check in the mail in the next few days. You may eventually get lower rates or money back, but when and how much will be determined on a company-by-company basis. And it may not be determined for weeks or months, until state Insurance Commissioner Roxani Gillespie holds rate hearings on your firm. Her office said Thursday that she will hold hearings as soon as possible.

Between now and November, 1989, insurers may set rates at whatever level they believe offers a fair return, but they must file for approval of those rates with the insurance commissioner. If the commissioner--after holding public hearings--determines that an insurer’s rates are “excessive, inadequate or unfairly discriminatory,” and not a “fair and reasonable” return, she can order a lower rate.

That lower rate, however, doesn’t necessarily have to be as low as the 20% rollback from rates of November, 1987, originally mandated by Proposition 103.

Any insurer required to charge a lower rate must refund to consumers the difference between what they charged and the mandated rate, plus interest, retroactive to November, 1988.

After November, 1989, insurance rates must be approved by the insurance commissioner before their implementation. But the commissioner can approve an interim rate pending a final decision.

Q: What types of policies are most likely to get rollbacks or rebates?

A: Homeowner policies tend to have higher profits than auto policies and thus are good candidates for rollbacks, contended Steven Miller, executive director of the Insurance Consumer Action Network in Los Angeles. As for auto policies, collision and comprehensive coverage tend to be areas where profits are higher, Miller contended. The commissioner could selectively roll back rates in such specificed categories, he said.

However, 103 is likely to have minimal effect initially on business property and casualty policies, Miller said. That is because insurers already are heavily discounting rates for those policies, in many cases to levels below even what Proposition 103 mandates.

Q: Might rates actually rise from current levels?

A: Yes. While several companies said Thursday they were still studying their options, it is expected that many will file quickly for approval of rates close to what they are charging now, or higher. Companies will argue that these higher rates are necessary for them to earn a “fair return,” a standard allowed by Thursday’s ruling.

For example, Aetna said Thursday it will file immediately for relief from the rollback, claiming that it lost more than $3 million in auto insurance last year and more than $15 million in the last five years.

Q: Can I seek sales commission rebates from agents?

A: Yes, and agents that are more efficient, and want to boost market share, may be granting rebates. Before Proposition 103, agents were prohibited from rebating any part of the commissions they receive from insurance companies.

With some forms of insurance, such as life insurance, commissions are as high as 200% of first-year premiums, although property and casualty premiums average only between 10% and 15%, said Judith E. Bell, director of special projects for Consumers Union in San Francisco.

“It’s in very much your interest to bargain with an agent,” Bell said. “If they won’t give you a rebate, go down the block and find somebody who will.”

However, some agents fear that Proposition 103 may prompt some insurers to cut commissions, thus reducing opportunities for rebates, said Jerry O’Kane, executive vice president of the Independent Insurance Agents and Brokers of California.

Q: When can I get a good-driver discount?

A: Many insurers already offer them, but beginning this November, a 20% discount for good drivers will be mandatory.

Q: What is defined as a good driver?

A: Proposition 103 defines a good driver as one licensed for at least three years with not more than one conviction for a moving violation in the last three years. But what constitutes a moving violation has been left up to the Insurance Department to define in new regulations. As it stands now, one moving violation could even include an arrest for drunk driving.

Q: How can I check to see if I am getting a rebate or rollback?

A: The Independent Insurance Agents and Brokers of California on Thursday urged consumers to call their agents. But don’t expect any definitive answer for some time.

“Our advice is to be patient; agents and brokers will be in contact with you if they find out,” O’Kane of the agents and brokers group said.

Q: What will happen to territorial ratings?

A: Starting in November, your ZIP code can no longer be the primary criteria for rates. Instead, your driving record must be primary, followed in order by the number of miles you drive and years of driving experience.

However, the insurance commissioner has the discretion to include other factors, including your place of residence. The Insurance Department is expected to eventually issue regulations on this.

Q: Can my insurer cancel my policy?

A: Insurers now can cancel or refuse to renew auto policies for only one of three reasons: non-payment of premiums, fraud or misrepresentation, or a “substantial increase in the hazard insured against.” This last clause has been left open to interpretation, and is expected to be resolved by the Insurance Department in new regulations.

Rules governing cancellation or non-renewal of homeowner or business policies are less strict, but few companies are expected to dump those policies.

Q: Can my insurer abandon my auto policy by leaving the state?

A: Yes, but only if it leaves the state entirely and gives up its license to offer any kind of insurance here. Otherwise, the only other way an insurer can leave the business is by finding another insurer willing to assume its policies.

If too many insurers leave the state, Proposition 103 has an emergency clause that empowers the insurance commissioner to assign abandoned policyholders to companies remaining in the market.

Q: If I wish to shop for a new policy, can a company refuse to sell me one?

A: Yes, for now. Auto insurers already in the state are not required to offer new auto policies until November, 1989. Some, such as Travelers, have not been selling new policies since last November.

Other companies are slowing new business by cutting or eliminating commissions, encouraging agents to direct business to other carriers. Or insurers are tightening standards, in some cases refusing to sell to drivers with even minor “fender-benders.”

But starting in November, insurers will be required to sell new policies to any consumers defined as good drivers.

Q: When will we be able to elect a new insurance commissioner?

A: The new insurance commissioner must be elected in the same general statewide election as the governor. That means that a primary must be held in June, 1990, and a general election in November.

Several candidates have already expressed interest in running for the post, which has become a high-profile job and springboard to higher office in several other states with elected commissioners.

Q: When will banks begin to sell insurance?

A: Security Pacific and First Interstate Bank of California, for example, both have obtained licenses to sell insurance. Security Pacific already has begun test marketing various lines of insurance by mail to 50,000 consumers in San Diego County, said Robert R. Morlan, president of the bank’s insurance group. The bank eventually may quit offering auto insurance, but expects to continue offering homeowner and life policies.

First Interstate plans to begin selling homeowner policies by this fall, with life insurance to be offered in 1990, said Carolyn Jones, a bank vice president. However, the bank has no current plans to sell auto insurance, she said.

Other banks are expected to join in eventually.