Insurers Must Do the Right Thing

Three years after California voters enacted Proposition 103--largely on the promise that they would get back some of the outrageous sums of money they had been paying for auto insurance--it looks as if some consumers may finally be getting their rebate checks.

State Insurance Commissioner John Garamendi has moved with admirable alacrity to put the controversial initiative to work. That’s not really surprising, because he’s the first insurance commissioner popularly elected under one of Proposition 103’s major provisions. It is now clear, in retrospect, just how much his predecessor--Roxani Gillespie, a former insurance company executive and an appointee of then-Gov. George Deukmejian--worked to block the initiative’s implementation. Only the insurance industry fought harder against Proposition 103, taking it to the state Supreme Court.

The state’s highest court upheld the initiative, with one key change that has become the pivotal issue upon which subsequent legal challenges to Proposition 103 have turned. While the initiative ordered a 20% rollback in the rates insurance companies charged their policyholders for casualty coverage in 1989, the court ruled that insurers are entitled to a “fair rate of return” (a reasonable profit, in other words) and that the size of any rate rollbacks should be based on whatever that return was for each insurance company.

Garamendi’s staff has now come up with a formula to determine what those profits will be. It is complex, and profit margins may vary considerably among the 700-odd companies licensed to sell liability coverage in California. Overall, however, Garamendi estimates that the rebates (which include interest that has accrued while the insurance industry fought Proposition 103 in court) will average about $100 per car. That’s not much compared to what most Californians pay for automobile coverage. But the rebates are an important symbol--a sign that Californians’ vote for change in the liability insurance system was not futile.

Of course, insurers argue that more than a one-time-only rebate is needed to balance the rising cost of all kinds of insurance--for example, reducing the number of expensive lawsuits and controlling health care costs. They are right. But by fighting Proposition 103, insurance companies are getting no closer to enacting those deeper reforms that are needed. It is the law of the land, for better or worse, and it’s long past time that they abide by it.

Those insurers that can afford to pay their share of the $2.5 billion in rebates ordered by Garamendi should do so and not prolong an already protracted legal battle. Then they must join Garamendi, Gov. Pete Wilson, the Legislature and consumer activists in reforming the entire liability insurance system, a difficult task that Proposition 103 only began.