PERSPECTIVE ON AUTO INSURANCE : Is No-Fault What California Needs? : NO: The industry hopes the initial $220 price tag of no-fault will divert attention from its true cost.

With the state commissioner no longer in their pocket, insurance companies are urgently pressing legislators to enact no-fault auto insurance.

Their latest proposal would require every motorist to buy a meager no-fault policy that does not cover property damage, fire or theft. Most Southern Californians would have to buy thousands of dollars worth of additional coverage to insure themselves against lawsuits by those whose no-fault policies don’t fully cover their own bills. And all but the most seriously injured victims would be forced to surrender their legal right to compensation for pain and suffering.

To market this pig-in-a poke-policy, the insurance industry has promised to sell it for $220--for the first year. After that, of course, the companies would demand far higher rates, just as they have insisted on 160% increases in assigned-risk premiums. Moreover, the fine print requires that other sources of benefits, such as disability and workers’ compensation, pay first.

There is no independent estimate of what no-fault would really cost. But it’s not hard to guess. Because it requires insurers to pay both parties to an accident, regardless of fault, rates average 40% higher in states with no-fault, according to a 1985 study.

Insurers love no-fault precisely because it allows them to justify demanding higher rates. Yet they hope the initial $220 price tag will divert attention from no-fault’s true cost--and from 103’s rollback and other reforms, which Commissioner John Garamendi has pledged to implement this summer. Indeed, it is unclear whether 103’s stringent rate controls would apply to keep the price of no-fault in check: The legislation appears to shift responsibility for controlling profits and expenses from the elected commissioner to a new bureaucracy dominated by insurance executives.

Despite the legislation’s flaws, a number of organizations, led by Consumers Union, support the no-fault bill. They believe that it will benefit those who cannot now obtain insurance--particularly minorities and those with low incomes. This is a tragic mistake.

Proposition 103 prohibits red-lining and territorial rating and mandates that insurers sell policies to any good driver, regardless of race, gender or residence. Yet many of the same firms sponsoring no-fault are either challenging these provisions in court or ignoring them. Without such protections, nothing in the legislation requires these companies to sell the basic policy to the people to whom they refuse to sell a policy today.

The endorsement of no-fault by some consumer and minority groups is a public-relations bonanza for the insurance industry and its allies. First, it gives the legislation a much-needed patina of respectability: The industry’s $1.2-million campaign, which includes intimidating ads aimed at low-income neighborhoods, rarely discloses that insurers are behind it. It also has placed community groups on opposite sides, furthering the industry’s “divide-and-conquer” strategy, and inhibiting needed unity on other matters. Finally, support for no-fault becomes a risk-free move for Wilson and Atty. Gen. Dan Lungren, both of whom are increasingly aligned with the industry. It allows them to appear “pro-consumer” while promoting an alternative that would undermine 103 and a potentially powerful political rival, Garamendi.

Wilson and Lungren are acutely aware that if Garamendi implements 103 properly, he will become a populist hero and a nearly invincible candidate for governor in 1994.

Developing a lifeline policy for low-income motorists and getting the uninsured off the road are essential goals. So are the guarantee of access to quality medical care for all Californians, and a cure for the court-congestion crisis.

However, pro-consumer solutions to these problems cannot be formulated without the regulation and consumer-protection reforms of 103. They are the unfinished business of state government, and voters who want lower insurance rates should insist that their elected officials unite behind Proposition 103 and against the insurance industry’s no-fault plan.