Inquiry Is Needed on Claim of Auto Policy Overcharging : Prop. 103 is the law, and its reforms should be carried out
Eight years after California voters rebelled against rising auto insurance premiums by passing Proposition 103, the results of the reforms they mandated are, at best, mixed. Insurance rebates have been paltry and in some cases are still being challenged in court. Meanwhile, premiums seem high to most drivers, who arrive at that conclusion through intuition rather than solid information because they cannot decipher the arcane methodology used by insurance companies to set rates and profits.
Consumers Union, the nonprofit organization that publishes Consumer Reports magazine, set out to determine the profitability of auto insurance sold in California after reading trade reports of how much money insurers were making from this line of personal insurance.
It released a report on Wednesday claiming that insurers overcharged Californians by more than $800 million in 1995. The group said that policyholders would enjoy an average premium cut of 7%, or $55 per insured vehicle, if Insurance Commissioner Chuck Quackenbush would bring down profits and rates among auto insurers to reasonable levels under Proposition 103, the 1988 initiative passed to roll back consumer insurance premiums.
The Times did not support Proposition 103 when it was on the ballot, in large part because of its reliance on over-regulation and confiscatory procedures. However, Proposition 103 was passed by the voters overwhelmingly, and it is wrong to try to circumvent the law--a law that sprang from years of consumer frustration with an unresponsive insurance industry.
Quackenbush admits that to date no industry standard for profitability has been set for auto insurance. In two homeowner and earthquake rate hearings, the commissioner set a “benchmark” of sorts--14% as an excessive-profit threshold for homeowner and earthquake policies. The Consumers Union study, done by the actuarial firm of Wakely and Associates, showed that the top 10 auto insurers’ average return on surplus (a key measure of profitability) was 28% in 1995, twice the 14% benchmark.
The commissioner has approved three auto rate cuts and has another pending. But he has approved one rate increase and in the process refused a Consumers Union request for a hearing on the case.
Quackenbush has made progress on other aspects of Proposition 103--he recently submitted proposed regulations for insurers to base premiums on drivers’ safety record and experience and less on their postal ZIP codes. Detracting from that is his reluctance to embrace the new questions being raised about whether insurance companies overcharge their customers and violate Proposition 103. He should investigate, promptly.
