The People Are Losing the War With the Insurance Companies

Hold onto your wallets. The new year will apparently ring in even higher auto insurance rates, for good California drivers as well as bad. Rates are going up because of a decision by Insurance Commissioner Roxani Gillespie, who seems determined to leave office as controversial as ever. But the Legislature deserves blame, too, for failing to deal with the auto insurance mess last session.

Gillespie is allowing several insurance companies, including some major carriers, to raise rates after freezing them 14 months while the Department of Insurance struggled to implement Proposition 103. Her ruling came at the end of a series of hearings during which insurers tried to adapt rate-setting practices to the requirements of Proposition 103.

ENTER GARAMENDI: Gillespie has so far approved 55 requests for rate increases, and may approve up to 100 more before Jan. 7--when she leaves Sacramento and newly elected Insurance Commissioner John Garamendi takes office. All the applications are supposed to incorporate new rate regulations included in Proposition 103, such as the requirement that an individual’s driving record has a greater impact on the insurance rate than where he or she happens to live.

But despite this and other changes in rating practices, Gillespie predicts many drivers in the state will pay more for auto insurance. That’s because most successful insurance companies try to insure only good drivers and thus have relatively few bad drivers to hit with rate increases when they become necessary. So while all bad drivers (those with more than one at-fault traffic accident or moving violation within three years) will pay much more, even some good drivers are going to get slight rate increases.

Of course, that’s hardly what everyone voted for when Proposition 103 passed, promising a 20% rollback in all insurance rates. The courts later held that provision invalid if it deprived insurance companies of a “fair rate of return,” and the companies raising rates have been able to convince Gillespie that a 20% rollback would hurt their business. Many Californians are understandably cynical about such a muddled and unsatisfactory outcome to the bitter campaign waged over Proposition 103. But it’s an object lesson in how imperfect the initiative process is in dealing with complex issues. For better or worse, insurance is a complicated business best reformed by legislators.

ADD MORE VOTER ANGER: Insurance Commissioner-elect Garamendi, whose election was made possible under one of the better provisions of Proposition 103, says he will review Gillespie’s rate decisions when he takes office and try to undo any he finds unfair or unjustified. That’s fine, as far as it goes. But no one who’s been waiting two years to get the rate rollbacks promised by Proposition 103 should hold his or her breath waiting for Garamendi to deliver what Gillespie failed to.

Instead, the very realization that Proposition 103 did not deliver all the relief it promised should renew public pressure for real insurance reform. That is where Garamendi’s leadership can be pivotal. As a former member of the Legislature, he knows what’s do-able in Sacramento and what isn’t. He argues that a no-fault auto insurance system like that which helps keep rates lower even in a big state like New York is not yet possible in California. Powerful political lobbies--insurance companies, trial lawyers and doctors--block movement.

But even if no-fault insurance is still a way off, there are immediate steps Garamendi can urge the Legislature to take to get things moving. A good place to start would be getting more drivers covered by insurance.

INSTITUTE NEW REFORMS: The Department of Motor Vehicles estimates that about 5 million California motorists simply ignore the state law that requires every registered vehicle to be covered by insurance. To pressure these drivers to comply with that law, the Legislature enacted another law five years ago requiring that any motorist stopped for a traffic violation must show the police proof of valid insurance along with a driver’s license. Last September the author of that law, Sen. Alan Robbins (D-Tarzana), agreed to allow it to lapse on Jan. 1 under a “sunset provision” because the Legislature ignored his pleas to create a low-cost insurance policy for low-income drivers. Robbins argued that it was unfair to put such drivers in the position of having to choose between insurance, which costs inner-city residents thousands of dollars, and food or rent.

Robbins is right--but that won’t make things any easier for the vast majority of drivers who do pay for auto coverage. With the proof-of-insurance law lapsed, thousands of drivers are likely to drop their coverage, adding to the number of uninsured motorists on the road and, eventually, adding to the premiums that insured motorists pay for protection in case of an accident with an uninsured driver.

Garamendi can help break this vicious circle if, as one of his first actions, he urges the Legislature to reinstate the proof-of-insurance law and come up with a low-cost, no-frills insurance policy even low-income drivers can afford. That won’t make all the drivers who face higher insurance rates next year any happier with Gillespie. But if it breaks the insurance gridlock in Sacramento, it offers hope of relief down the road.