Half-Won Insurance Victory

California voters told the insurance industry and the state government last November that they wanted to pay less for auto, property and liability insurance and have the state give them more protection. On Thursday, the California Supreme Court told the industry that nearly all of that message contained in Proposition 103 was well within the bounds of the law. The battle now switches to Insurance Commissioner Roxani Gillespie, who must decide whether current rates, proposed rollbacks and future increases are fair, and to Gov. George Deukmejian and the Legislature, who must see that she gets the money to do the job right.

The court’s decision is a victory for consumers, who had grown irate over soaring auto insurance rates, abrupt and arbitrary policy cancellations, and prices that varied wildly depending on the neighborhood in which they lived. The extent of the victory will depend on the vigor with which the industry will now be regulated.

Writing for a unanimous court, Justice Allen E. Broussard said the initiative’s 20% insurance-rate rollback was not confiscatory because insurers still have the right to try to prove that they need higher rates to cover their costs. But don’t count the money just yet. One major insurance company has already predicted no immediate effect on premiums. Many will seek relief from rollbacks.

The court did overturn one of the initiative’s most objectionable and short-sighted provisions. It stated that insurers could obtain exemptions from the rollbacks by demonstrating that they were substantially threatened with insolvency. Pushing companies to the brink of ruin makes little sense and in the end hurts consumers by reducing competition. The court found this portion of the proposition unconstitutional, because it did not give insurers adequate procedural protection against the establishment of confiscatory rates.

Proposition 103 can have long-term beneficial effects. The proposition allows banks to sell insurance, thus increasing competition. Insurance companies now must open their books and justify their rates, a particularly significant reform.

Nevertheless, it is important to remember that adoption of the initiative, and the court ruling upholding its essential provisions, do not solve the basic problems of insurance in the state. Much remains for the Legislature and governor to do.

The Legislature, whose inaction had again led to government-by-initiative, has failed to move toward a long-term solution. The crisis is evident in soaring accident claims and litigation, rising auto-repair costs and increasing medical costs. Proposition 103 attacked only the symptoms. Consumers and insurance companies alike will benefit if the root cause of higher costs is attacked. Assemblyman Patrick Johnson (D-Stockton) and Consumer’s Union, for example, have proposed a no-fault system based on the New York law, which is widely thought to be the best in the country. That deserves priority consideration.

Thursday’s court decision creates a new political dimension of government in California. Suddenly, the post of insurance commissioner has become an extremely powerful job in both economic and political terms. It will become an elective office in 1990. Already there appears to be a scramble for the post, which is hardly surprising given the high visibility, the level of consumer sensitivity and the economic importance of the judgments which the commissioner will now be called upon to make. It will not be an easy task. It will demand profound good judgment, not demagoguery, if the true interests of consumers are to be protected.

The fight last fall over five insurance initiatives was triggered by the failure of the Legislature to legislate and the regulators to regulate. The voters’ message, upheld by the court this past week, was clear. They want government to do its job, and they will be watching to see it does.