Report: Prop 103 Has Saved California Drivers $154 Billion
By Kevin Smith, SAN GABRIEL VALLEY TRIBUNE
October 19, 2018
Californians are used to rising prices.
It seems we’re constantly paying more for gas, housing, clothes, meals, movie tickets … you name it. But a new analysis by research and advocacy firm Consumer Federation of America says California drivers have saved $154 billion on auto insurance since Proposition 103 took effect in 1989.
The ballot measure was authored by Harvey Rosenfield, founder of Santa Monica-based Consumer Watchdog.
A rollback in rates
Prop. 103 requires insurance companies get approval first from California’s Department of Insurance before implementing property and casualty insurance rates. In the days before Prop. 103, auto, property and casualty insurance rates were set by insurance companies without approval by the state.
The measure also required each insurer to roll back its rates by 20 percent.
Doug Heller, a California-based insurance expert for CFA, said those requirements have made a difference.
“California has the most cars on the road and staggering congestion in some of its cities and suburbs, but drivers pay less for coverage than most of the country and have seen far more moderate increases in insurance costs because of the protections in Prop 103,” Heller said in a statement.
Using 2015 data from the National Association of Insurance Commissioners, CFA calculated the change in total auto insurance expenditures — the average drivers spend on all coverages and auto liability premiums in California since Prop 103 took effect in 1989 — and compared that with changes in insurance rates nationwide and state by state.
Opponents have argued the stringent regulation of auto insurance rates has inhibited competition in the marketplace.
The CFA addressed that concern by using the federal test for market concentration — the Herfindahl-Hirshman Index — to determine the state of competition in California’s market. Lower HHI scores indicate more competition, while a higher score shows a market that is not optimally competitive. California scores a 723 on the HHI, the second lowest in the nation, according to the report.
Highlights of CFA’s analysis
- The average total auto insurance expenditure of Californians has risen by only 12.5 percent since Prop. 103 passed, while average expenditures of all drivers nationwide (including Californians) have risen by 61.1 percent.
- Californians spent $93.48 more on all coverages in 2015 than they did in 1989, but drivers in all other states spent, on average, $352.71 more.
- Before Prop 103, Californians spent 36 percent more on auto insurance than the national average. They now spend 5 percent less.
- For liability-only coverage, California premiums were 53 percent above the national average before Prop 103. Now they’re 9 percent below average.
- When California premiums in 2015 are compared with what they would have been if the state’s premiums simply followed the national average growth, Californians have saved $154 billion or an average of nearly $6 billion a year, CFA estimates show.
An opposing view
Rex Frazier, president of Personal Insurance Federation of California, a Sacramento-based trade association, links the bulk of California’s price declines to a variety of other factors including crash-avoidance systems, improved seat belts and airbags, anti-fraud laws and stricter DUI laws, which all have served to reduce accidents and lower rates.
“All Prop. 103 did was impose a prior approval system for rates and implement a one-time rollback,” he said. “It didn’t impact the underlying costs, including the frequency and severity of crashes and insured losses.”
Frazier also said Prop. 103’s prior approval rule deters insurers from adjusting their rates, even when they might want to lower them, because it can be a lengthy process depending on which parties decide to weigh in on the proposed change.
“The state can’t approve a rate change for 45 days to begin with, and if other groups like Consumer Watchdog want a seat at the table … it can sometimes take as long a year,” he said.
A 2015 report from the R Street Institute said California’s current insurance system discourages competition because it’s slower, less predictable and more punitive than other states. Lengthy review cycles tend to mean that California consumers are slow to receive new products, the study said, even though the state’s market — as the nation’s largest and most diverse — should make it among the first.
Rosenfield disputes that argument.
“Insurance companies don’t want voters to get credit for having toilet trained the industry,” he said. “All of these arguments have been examined. And all of those other things — seat belts, airbags and new technologies … they appeared everywhere in the country. California is the only state where rates are lower than they were in 1989. It comes down to how voters change the laws. Prop. 103 simply requires that insurance companies charge fair rates and reduce their abusive practices.”