Auto Insurers Readying New Rate Plans for State Approval

It took nearly nine years, but California insurance companies next week will submit for approval proposed rates that, for the first time, are expected to comply fully with Proposition 103, which promised to cut prices by dramatically changing the way insurers set rates.

“With these new rating plans, everything will be changed,” said state Insurance Commissioner Chuck Quackenbush.

The new rates, which must be filed with the state Department of Insurance by Tuesday, will be based primarily on a motorist’s driving record instead of the traditional industry method of basing prices on where a policyholder lives. That change will most likely cut the cost of coverage for good drivers in major urban areas, while raising rates for motorists with poor driving records as well as for those living in suburban and rural areas.

Policyholders will start noticing the changes in the next few months as individual company rates are approved.

State regulators and consumer groups could still challenge some of the approximately 200 individual company rate filings, and a few insurance firms could still fight the new regulations in court.

But industry officials are not aware of any plans to launch any more legal battles, which the industry has mostly lost. State regulators said they will finish reviewing all proposed rates by Sept. 1.

“It’s certainly been worth the fight,” said activist Harvey Rosenfield, who was author of Proposition 103 and has monitored its painfully slow implementation. But “I never expected nine years.”

In November 1988, California voters, angered by skyrocketing auto insurance premiums, approved Proposition 103.

Since then, the measure has been mired in lawsuits, regulatory delays and controversy. On the morning after it was approved by voters, the insurance industry sued to block the measure and took its fight to the U.S. Supreme Court, which refused to hear the case and allowed the law to stand.

Various parts of the law have been implemented piecemeal over the years or have drastically changed. For example, many companies have adopted the 20% good driver discount required by Proposition 103. But many of those same companies fought--and were able to avoid--the immediate 20% rollback in premiums the initiative called for by negotiating with the state for smaller rebates.

However, nine auto insurers--including California’s largest, State Farm--are still fighting the rollback in court.

Since 1989, three insurance commissioners have operated under a set of temporary Proposition 103 regulations, which have been under constant attack by insurers and consumer groups. After a series of hearings and lobbying by all sides, permanent regulations were approved last summer, and insurance companies were given until Feb. 18 to come up with rates that comply.

Perhaps the most controversial and complex portion of the initiative bans insurers from setting rates based primarily on where policyholders garage their cars. Consumer and civic rights groups have long argued that such a method penalizes good drivers in the inner-city with high rates. The industry has defended the standard as good indicator of future claims.

Under the rates to be filed next week, auto insurance prices must be determined primarily by a driver’s record, annual miles driven and years of driving experience.

The squabbles over the impact of Proposition 103 have continued even as the companies prepare their new rates. Earlier this week, Quackenbush said a Superior Court had backed his authority to prevent insurers from including in their rates a surcharge on uninsured motorists seeking coverage. But outraged consumer groups claimed that Quackenbush had originally supported the surcharge until they filed suit.

Many consumer groups also remain wary about next week’s rate filings and vow to challenge any that try to skirt Proposition 103.

“Why haven’t they sued? It must be because they believe that they have some statistical mechanism that can minimize the effect” of Proposition 103, said Bill Ahearn, head of Consumer Union’s West Coast division.

Some consumer groups expect insurance firms to try to overturn portions of the law in the legislature this year. However, insurance industry officials are counting on a public outcry from motorists.

“I just wonder if the electorate realizes what they had voted for,” said Barry Carmody, president of the Assn. of California Insurance Cos. “When they see the final implementation, it will be an eye- opener--if not a wallet opener.”