Calif. Car Insurance Market Wins Praise

California has struck the best balance of any state between good auto insurance prices for consumers and reasonable profits for insurers thanks to voter-approved Proposition 103, a Washington-based consumer group said Wednesday.

Consumer Federation of America--which hopes the survey will help head off insurers’ calls for deregulation in the auto insurance market--cited the “remarkably effective provisions” of Proposition 103, which imposed controls on auto insurance rates in California.

The group said the proposition, which voters approved in 1988, helped California achieve both record insurer profits and a 4% drop in auto premiums in the 1990s, even as rates were rising nationally.

But the group’s analysis was immediately disputed by companies that sell insurance to California drivers and also, in part, by consumer groups based here.

Insurers said increased competition, not Proposition 103, was responsible for declines in auto rates. Premiums would have declined further had insurers not worried about regulatory interference, State Farm spokesman said Bill Sirola.

“The industry as a whole is somewhat reluctant to cut rates as much as they should because they never know how difficult it will be to raise rates when the time comes,” Sirola said.

Insurers and industry analysts cited a slew of other factors they said contributed to rate declines in the state, including legislation to fight insurance fraud and court-imposed limits on insurer liability that restricted who can sue insurers.

California-based consumer groups, meanwhile, said the heart of Proposition 103 has never been implemented. The proposition was in part designed to ensure that people’s driving records and miles driven mattered more than where they lived in setting rates.

Voters approved Proposition 103 after auto insurance premiums spiked during the 1980s to some of the highest rates in the nation, with urban drivers typically paying far more than their rural and suburban counterparts. The proposition resulted in $1.3 billion of premium rebates to drivers and imposed new controls on auto insurance prices.

But insurers are still allowed to set premiums largely based on ZIP Codes. In March, the state Supreme Court upheld state Department of Insurance regulations that allowed ZIP Code-based premiums.

“It may be that what we’ve got here is better than what the rest of the country has got, but what we’ve got here has plenty of room for improvement,” said Mark Savage, an attorney for San Francisco-based Public Advocate, which has fought ZIP Code-based pricing in court.

Proposition 103 also extended antitrust laws to prevent insurance industry collusion on prices, required insurers to justify rate changes and gave insurers financial incentives for efficient performance--all factors that promoted competition, said Robert Hunter, the federation’s director of insurance and a former Texas insurance commissioner.

The percentage of uninsured drivers is declining and the average Californian spent $30 less on auto insurance in 1998 than in 1988--while nationally drivers spent $152 more, Hunter said.

Proposition 103 requires the state insurance commissioner to approve rate changes, and “California has benefited,” Insurance Commissioner Harry Low said Wednesday. “It’s quite an achievement to be where we are in terms of having lower rates.”

At the same time, California insurers enjoyed healthy profits, industry analysts said. State insurers received an average 16% return on net worth between 1990 and 1999, while insurer profits countrywide were less than 11%, the federation said. Those profits have since declined--and rates are on the rise both in California and nationally, industry analysts said.

In the last year, several major insurers have begun to raise auto insurance rates, citing higher claims costs.

Lower profits have also led to calls for less regulation, a trend the Consumer Federation is trying to fight. The National Assn. of Insurance Commissioners, a group of state insurance regulators, is mulling proposals to encourage deregulation in the auto insurance market.