Prop. 103 Starts Taking Hold--but Rates Go Up : Insurance: Many motorists are receiving increases despite the promise of 20% cuts. Inequities still exist.

Proposition 103, the auto insurance rate-cutting measure, is finally going into effect, and the new rates are beginning to appear on consumers’ bills around the state. In most cases--despite the initiative’s promise of 20% cuts--rates will go up.

Consider an individual with an unblemished driving record living in La Puente, a small suburb in the southern San Gabriel Valley. Last year, State Farm charged $1,060 to insure this driver’s 1990 Ford Tempo. The new annual rate: $1,331--a 25.5% increase.

You live in Ventura and insure with Farmers? It is time to worry. One couple will see their rates rise 17% even though neither has tickets or accidents. If one of those drivers had two tickets, the family’s premium would soar 37%.

But there is good news for a 20-year-old driver who has never had insurance. A few months ago, Farmers would have charged this South Bay resident $2,420 to insure her Honda Accord. Today’s rate is a comparatively paltry $1,432.

All this might seem confusing to those who remember Proposition 103 campaign promises of two years ago. At that time, voters were led to believe that everyone in the state would receive a 20% reduction in their auto insurance rates if the measure passed. Good drivers would get even bigger rate cuts.

Needless to say, it has not worked out that way. Two years of legal battles, regulatory filings and public hearings have resulted in only isolated rate cuts, many rate hikes and a whole lot of changes.

There are three principal reasons for this: technical changes mandated by Proposition 103, court rulings that said insurers could not be denied a fair profit, and regulatory decisions about what a fair profit is.

Proposition 103 said insurers had to cut their rates by 20% or more and had to stop using ZIP codes as a way of determining premiums. Many drivers were convinced that auto insurance rating practices were discriminatory because an Inglewood resident, for example, paid twice as much as someone living in Glendale.

Generally, the proposition’s authors thought that if $100 million in premiums had been collected the year before the measure, only $80 million in premiums would be taken in the year after. Moreover, the driver in Inglewood and the driver in Glendale would be charged the same rate, assuming they had the same driving record, coverage and car.

That did not happen.

The issue ended up in the state Supreme Court, which decided that certain parts of Proposition 103--especially the rate cuts--were unconstitutional. Insurers are entitled to a fair profit, the court ruled. What is a fair profit? That was left to the regulators to decide.

Former Insurance Commissioner Roxani Gillespie held hearings and ordered every property and casualty insurer in the state to submit documents showing how much money they made on each line of business.

In the end, Gillespie, a former insurance industry executive, decided that company profits were not excessive. In fact, they were low enough to warrant rate hikes in many cases.

Before she left office, Gillespie approved rating plans for companies that insure 70% of the state’s drivers. A number of companies just shifted around premiums to comply with Proposition 103, but companies insuring 40% of California’s drivers were granted rate increases ranging from 1% to 40%.

What is now going into effect is a new method for setting rates.

The method says the three most important factors in setting insurance rates are your driving record, number of miles driven annually and number of years you have had a driver’s license. There are dozens of other elements that also affect your rates, including the kind of car you drive, where you live, marital status, age and, sometimes, whether you smoke.

Still, the first three elements are supposed to be the most important. The weighting of all other factors varies from company to company.

That makes it difficult to generalize about what will happen to individual rates. But there are some rules of thumb:

* If you live in a relatively low-rate suburban area, your rates are likely to climb. If you lived in a higher-rate area, your rates might ebb. However, territory is still important to your rates. By and large, Inglewood residents are still paying substantially more than Glendale residents, but the percentage difference is probably slightly less.

* Those who have been insured by the same company for a number of years will often get a break. Although so-called consistency discounts are not standard, many of the state’s largest insurers offer them, and sometimes they are substantial.

* People with more than one speeding ticket or at-fault accident, a drunk driving conviction or other driving problems should expect steep rate hikes. “Good drivers,” those with fewer than two strikes on their driving records, theoretically get a 20% break on their rates. But after the new calculations go into effect, only a few will see reductions in the premium they pay.

* The options on your car are likely to be more important. If your car is equipped with anti-lock brakes, automatic seat belts or air bags, you are likely to pay less than someone with a more standard car.

* If you drive a lot, you are likely to face higher rates than those with a short commute. Although mileage has always been a factor in determining rates, it is usually a bigger factor now.

“There is going to be a real uproar when these rates go out because people who do not qualify for the good driver discount could see their rates double,” said Charles Toney, an assistant actuary at Mercury General Insurance in Los Angeles.

Consider a couple living in Beverly Hills. They have two cars--a 1989 BMW and a 1987 Volvo station wagon--clean driving records and have insured with Mercury General for five years.

Under the old system, this couple paid $3,600 annually. Under the new system, their rate would drop 17.4% to $2,972. That is because Mercury now will charge them less for their ZIP code, give them a discount for their clean driving records and give them another break for being longtime customers.

What happens if this couple has a few tickets? Their rate rises to $5,350. If they were not considered good drivers and they were new customers, their rate would soar to $6,702--or nearly twice what it would have been before implementation of today’s Proposition 103 rules.

Or consider an experienced driver who insures with State Farm and lives in central Los Angeles. State Farm says this person--who is accident- and ticket-free, drives a Ford Tempo and has relatively high insurance limits--would pay $2,350 under the old program. Under the new plan, this driver’s rates would drop to $1,936. But if this driver had racked up two tickets in three years, the rate would jump to roughly $3,600 versus about $2,600 under the old system.

“Approximately 85% of our customers qualify for the good driver discount,” so the other 15% take it on the chin, said Bill Sirola, a State Farm spokesman.

There is about a 30% chance that your rate will be exactly--to the penny--the same as it was six months ago. That is because the business of approving or rejecting all rate filings was not finished before Gillespie left office. Once John Garamendi was sworn in as the new commissioner, he froze insurance rates for all companies that had not received a regulatory go-ahead to raise or redistribute their rates.

People in this category have reason to be hopeful. Garamendi maintains that their rates are going to stay frozen until their insurers deliver rebates where warranted and cut premiums to levels that he thinks are fair.

Garamendi may come to the same conclusions as Gillespie, or his decisions might be overturned by the courts. For now, the commissioner seems to be taking a harder line with insurers, and several consumer advocates believe his proposed rules will result in bigger rate cuts.

Garamendi wants to have his new rules ready this summer. Once those rules are set, he said he will review previously approved rates. For the moment, if your insurer raises your rates, you have got to pay or find insurance elsewhere.

“Dozens of rating plans were approved by Gillespie, and we have no way of stopping those from going into effect,” said Tom Epstein, deputy insurance commissioner. “People who have gotten these changes are going to have to live with them for at least six to nine months until Garamendi’s rules are in place.”

PROP. 103 STARTS TO KICK IN

Here are the annual auto insurance rates for a hypothetical couple in their early 30s with clean driving records, average mileage between 7,500 and 15,000 miles annually. Car No. 1 is a Honda Accord LX, driven eight miles each way to work. Car No. 2 is a 1988 Dodge Caravan SE, used for pleasure. Bodily injury limits on each car is $50,000 per person, $100,000 per accident; up to $25,000 for property damage; uninsured motorist coverage of $15,000 per person, $30,000 per accident; medical payment limits of $2,000; $240 comprehensive and collision deductibles on the Honda; $240 comprehensive and $500 collision on the Caravan.

These are Farmers Insurance Co. rates under the old plan and the new plan in several Southern California areas. Farmer’s new rates include a 6.6% average rate increase.

Area Old rate New rate percent change Ventura 794 884 +11% Pacoima 2,502 2,552 +2% Hollywood/Beverly Hills $3,216 $3,290 +2% Inglewood 2,830 2,914 +3% Torrance 1,322 1,348 +2% Riverside 1,074 1,178 +10% Yorba Linda 1,180 1,240 +5% Orange 1,128 1,198 +6% Anaheim/Santa Ana 1,378 1,444 +5% Newport Beach 1,258 1,324 +5% San Juan Capistrano 1,114 1,146 +3%

Source: Farmers Insurance Co.