Putting Prop. 103 to Work

In ordering auto insurance companies to stop using drivers’ home addresses to set their rates, state Insurance Commissioner Roxani Gillespie finally seems determined to put Proposition 103 to work. And ordering a freeze on rates while her Insurance Department completes the process of implementing the initiative was also useful. If Gillespie had only acted sooner, some of the confusion surrounding the contentious issue might have been averted.

Granted, the initial delay in putting Proposition 103 to work after state voters approved it last November resulted from a lawsuit the insurance industry filed challenging it. But the state Supreme Court decided in May that the initiative was legal, adding only a requirement that the rate rollbacks Proposition 103 mandated not deprive insurance companies of a “fair rate of return.” Then and there, using the very same legal authority Gillespie has cited in making her decisions this week, the insurance commissioner could have ordered at least a temporary halt to existing insurance industry practices while trying to determine precisely what a fair rate of return is.

Instead, she began a series of complex hearings on the matter that have yet to reach a firm conclusion. In the meantime, key segments of the insurance industry have remained obstinately opposed to Proposition 103’s rate rollbacks, some companies even announcing rate hikes that were designed to go into effect before the balance of the initiative’s reforms did. Gillespie said that she was finally moved to act by a 5.9% rate increase announced by Farmers Insurance Group last week, adding that several other insurance companies had planned to follow suit.

Ironically, Gillespie’s decisions will also keep State Farm Insurance, the biggest seller of automobile coverage in California, from rolling back some of its rates. State Farm also announced that move last week, but in order to lower rates for some policyholders, the company would have to raise rates for others and that can’t happen now. But the State Farm decision is still important because company officials said its new, lower rates would be based on an individual’s driving and auto-safety record more than on where he or she happens to live.

That is a significant break with the rest of the insurance industry, and a concession to advocates of Proposition 103. The initiative requires that territorial rating--the practice of setting insurance rates on the basis of where a policyholder lives--be given less importance than an individual’s driving record. So if State Farm can live with Proposition 103, why can’t other insurance companies? That is a key question Gillespie must answer as her hearings on Proposition 103’s implementation continue.

In the meantime, Gillespie’s boss, Gov. George Deukmejian, can also act more decisively to resolve the auto insurance crisis. His veto of a needlessly complex insurance-reform bill passed by the Legislature at the behest of the California Trial Lawyers Assn. was a good first step, but it still leaves thousands of California motorists who can’t afford the high cost of auto insurance in the lurch. Deukmejian should now work with the Legislature to write a no-fault auto insurance law for this state, similar to New York’s. Linked with the public regulatory system mandated by Proposition 103, no-fault insurance will make it easier for all California drivers to afford automobile insurance.