Consumer Advocates See Rematch of $80 Million 1988 Battle
Santa Monica, CA -- Just days after the announcement of more insurance rate reductions under Proposition 103, the insurance industry has quietly introduced three ballot measures to undo these and other consumer protections of the 1988 ballot measure.
The proposals, submitted to the Attorney General for the November, 2006, ballot, would undo actions by the Insurance Commissioner announced just two weeks ago to make auto insurance premiums fair and reduce premiums for good drivers. The insurance industry initiatives would lead to immediate rate increases for California auto, home and business insurance and authorize Sacramento legislators to gut the rest of Proposition 103.
As a result of Proposition 103, California auto insurance premiums, which were second highest in the nation prior to the initiative, dropped to 20th after the initiative passed, according to the most recent data reported by the insurance industry. The average premium has fallen 22% in California, while it has risen an average 30% throughot the rest of the country since 1988. Consumer advocates warned of dire consequences should the insurance industry's new initiatives pass.
"California motorists, homeowners and businesses can expect to pay hundreds or thousands of dollars more every year for insurance if the insurance industry is able to trick the voters into passing their initiatives," said Harvey Rosenfield, the author of Proposition 103 and the founder of the Foundation for Taxpayer and Consumer Rights (FTCR). "Proposition 103 has blocked over $20 billion in rate increases in auto, home and business insurance, forced insurance companies to refund $1.2 billion to Californians, stopped unfair surcharges, and reduced the number of uninsured motorists. Later this year, it will reward good drivers with additional rate reductions. The insurance industry wants to steal these savings from consumers and that's what these initiatives will do."
Initiatives Would Gut Proposition 103
The three ballot measures propose to repeal key provisions of Proposition 103. Among their provisions:
1. Reinstate Arbitrary Zip Code-Based Premiums
On December 27, Insurance Commissioner Garamendi announced he was ordering insurance companies to base auto insurance premiums primarily on a motorist's driving safety record rather than zip code -- a change required by Proposition 103. The insurance industry initiatives would repeal that requirement and authorize insurers to continue to use the zip code-based system that was illegally approved by former Commissioner Chuck Quackenbush.
2. Allow Insurance Companies to Raise Rates Without The Commissioner's Review and Approval
Proposition 103 requires all auto, home and business insurers to open their books and justify rate increases, which the Commissioner must approve as fair before they take effect. Under present regulations, the insurers' profits, expenses, executive salaries and loss projections are limited. This provision of proposition 103 has blocked over $20 billion in rate increases since 1988.
The insurers' initiatives eliminate Proposition 103's regulatory controls over the insurers. Insurers would be free to raise rates at will, opening California up to the double digit rate increases that it experienced prior to Prop 103 and that the rest of the nation experiences today.
3. Legalize Premium Surcharges Now Prohibited By Law
Proposition 103 bars insurers from penalizing motorists who have had a lapse in coverage or who have not been previously insured, a practice that the California Supreme Court recognized as widespread in a 1985 decision. The Legislature attempted to authorize such surcharges at the behest of one insurer, but was blocked by the courts. The industry proposals would authorize such premium increases.
4. Allow the Legislature to Gut Proposition 103
Proposition 103, like most initiatives, forbids the Legislature was altering the voter-approved law unless the changes "further the initiative's purposes" and then only by a vote of two-thirds of legislators in each house. The California Constitution provides this authority to protect ballot measures. The industry initiatives would allow the legislature to repeal any or all of Proposition 103 at will.
"The voters took matters into their own hands and passed 103 because the Legislature was too corrupted with industry money to pass reforms. If the industry proposal passes, the insurance lobby will buy the repeal of the rest of Prop 103 within a year," said Rosenfield.
Draft of Initiative Discovered on Industry Website One Week Ago
Rumors that the insurance industry was seeking to organize a campaign to repeal Proposition 103 have circulated for several years, with insurers estimating it would cost them as much as $150 million to $200 million to convince voters to pass an anti-103 initiative sponsored by the insurance industry. Mercury Insurance, one of the ringleaders of the proposals, has told Wall Street analysts that it is backing the plan. And in late December, a draft version, with many notations about political polling, was placed, apparently by accident, on the web site of the Association of California Insurance Companies, an industry lobbying group in Sacramento. It has been taken down, but can be downloaded from FTCR.
Industry Unable to Cripple Prop. 103 in Courts, Legislature
Unable to defeat Prop 103 at the ballot box in 1988, the insurance industry has bitterly resisted the law since its passage. Over 100 lawsuits brought by insurers against the measure were rejected, and the California Supreme Court twice unanimously upheld its rate rollback and regulation provisions. Insurers have asked the courts to rewrite Proposition 103 to prevent consumers from suing insurance companies when they overcharge the public or violate other provisions of Proposition 103; in 2004, two appellate courts rejected the challenge, but two more are pending. Also in 2004 the State Supreme Court unanimously rejected an insurance industry challenge to Prop. 103's requirement that insurers disclose important data about company practices.
The insurers have also repeatedly attempted to get the Legislature to override Proposition 103, despite the constitutional prohibition against legislative meddling with the ballot measure. The Los Angeles insurance company that appears to be one of the leaders of the industry ballot measures, Mercury Insurance, spent millions of dollars on corrupting campaign contributions and got lawmakers to enact, and Gov. Gray Davis to sign, 2003 legislation (SB 841, Perata) repealing Proposition 103's prohibition on unfair surcharges for motorists who have a lapse in coverage or were previously uninsured. FTCR, Consumers Union and other citizen groups challenged the law as an unconstitutional change to a voter-approved measure, and won. Yesterday, January 4th, the Supreme Court rejected Mercury's appeal. Its CEO, George Joseph, a notorious political player in Sacramento, also paid lawmakers to support legislation that would have repealed Proposition 103's "good driver" requirements in 1995. FTCR was able to defeat that bill in the state Senate. Other hostile amendments to Prop 103 passed by the legislature have been thrown out by the courts.
And insurance companies have tried to corrupt the office of insurance commissioner, made an elected post by Prop 103. Republican Chuck Quackenbush was elected in 1994 and reelected in 1998 with millions of dollars in insurance industry money. Quackenbush permitted insurers to flout Proposition 103 and was ordered to obey the law by the courts. In 2000, Quackenbush was forced to resign from office under threat of impeachment after journalists exposed that he had waived billions of dollars in policyholder restitution and penalties against insurance companies for mishandling earthquake claims in exchange for donations to slush funds he created.
"Insurance companies tried to stop Prop 103 at the ballot box, in the courts, in the legislature, before the insurance commissioner, and each time they have lost. Now the insurance industry hopes it can spend hundreds of millions of dollars -- our dollars -- so they can go back to ripping us off. We don't have the resources they do, but we are confident that the voters will not be fooled," said Rosenfield
Other Elements of Proposition 103
Proposition 103 was passed by the voters in 1988 after the legislature, beholden to the insurance lobby, refused to pass stronger regulation of the insurance industry proposed by consumer advocates after three years of double-digit rate increases. In an unprecedented battle, insurers spent $80 million and mounted three of their own initiatives in their attempt to defeat Proposition 103.
In addition to the good driver and rate regulation provisions targeted by the initiatives, Proposition 103 mandated a 20% rollback and a permanent 20% Good Driver Discount; applied state consumer protection and antitrust laws to the industry for the first time; requires full disclosure of insurance rate information to the public; authorizes the public to review and challenge unfair rates and practices at both the Department of Insurance and in the courts; repealed barriers to competition among agents, brokers and insurance companies; and made the Insurance Commissioner an elective post. The passage of the proposition was hailed as one of the great David v. Goliath triumphs in American politics.
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