California’s Car Insurance Rates Down 11.3% Since 1995

Auto insurance rates in California dropped 5.7% last year and are down 11.3% since 1995, the largest four-year decline ever, the state Department of Insurance said Wednesday. The announcement immediately triggered criticism from consumer advocates who contend that price cuts would have been greater with tougher regulation.

Rates are expected to continue to fall this year, analysts said, but that trend may slow amid pressures on insurers’ profits.

State Insurance Commissioner Chuck Quackenbush credited the state’s pro-business climate for encouraging competition among insurance companies and called the decline in rates historic.

But consumer advocates, including Santa Monica’s Proposition 103 Enforcement Project, complained that car insurance rates would be even lower if Quackenbush enforced provisions of the 1988 proposition that bar auto insurers from making excess profits.

Industry analysts say insurers in California have benefited from the 1996 passage of the industry-sponsored Proposition 213, which banned drunk drivers, uninsured motorists and fleeing felons from suing for pain-and-suffering damages.

“Since Prop. 213, a lot of companies have been cutting rates fairly dramatically,” said Ira Zuckerman, an insurance analyst for Nutmeg Securities. “It’s gotten a lot of unnecessary and expensive lawsuits out of the system.”

Quackenbush meets today with a legislative oversight committee that is reviewing the Insurance Department’s performance in protecting consumers.

Even as rates have dropped, California insurers overall boasted record profits as lower claims costs and strong investment returns more than offset the price reductions, industry analysts said.

Nationally, car insurance rates rose more than 12% between 1994 and 1997, the last full year for which statistics are available. Zuckerman said rates began to edge down nationally last year about 1% to 2%.

Despite the lower rates, the Proposition 103 Enforcement Project published a study last year saying California consumers had paid $7.7 billion too much for auto insurance, and that the average premium should be $100 lower.

“Insurers are paying out in claims about half of what they’re collecting in premiums,” said Jamie Court, spokesman for the Proposition 103 project. “Premiums should be going down 40%.”

Voters passed Proposition 103, which required price rollbacks and other measures, after car insurance rates soared in California during the 1980s, making the state’s rates among the most expensive in the nation. Nationally, insurance rates rose 61% between 1988 and 1997.

Court said the proposition helped lead to the lower rates. Quackenbush, however, repeated some analysts’ assertions that 103 actually impeded insurers from lowering rates because they feared not being able to raise prices again when profits lag. Rate increases or decreases of more than 7% are subject to public hearings.

That requirement has yet to stem the tide of rate decrease applications in the current competitive environment, however. Quackenbush said several more are on his desk, awaiting action, as companies struggle for market share.

“That’s where consumers win,” he said.