15 Years of Auto Insurance Regulation Has Reduced CA Premiums, While Rates Increased 47% Nationwide;

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Prop 103-style Regulation of Health Insurance Will Be Debated in Legislature on Wednesday

Santa Monica, CA — As the California legislature continues the debate on whether to regulate the health insurance industry on Wednesday, a new study of California’s landmark insurance reform initiative, Proposition 103, shows that the nation’s most effective insurance regulation system has dramatically reduced costs for consumers and provides a model for health insurance reform.

"California’s experience under Proposition 103 proves that the way to rein in skyrocketing insurance rates is through active regulation of insurance companies," said Harvey Rosenfield, author of Propostion 103 and FTCR founder. "At a time when people are being priced out of their health insurance it’s outrageous that State Farm has to justify its auto premiums but health insurers are allowed to charge whatever they choose."

According to the report released today:

– California auto insurance premiums have declined by 7% since voters approved the landmark insurance reform initiative, Proposition 103 in 1988, while rates nationally have increased 47%.

– In the fifteen years following the passage of Proposition 103, California went from 2nd most expensive state for auto liability premiums in the country to 21st (1989-2004, most recent data available).

– Californians, who paid 52% more in 1989, paid less than the national average for auto insurance in 2004.

– In addition to rate reductions for consumers, the stability of rate regulation has provided above average profits for California insurers.

Read the study here

Under Proposition 103, insurance companies must justify any rate changes prior to imposing higher rates. The law, which applies to most lines of property-casualty insurance also sets standards for company profits, allows consumers to review insurer data and challenge proposed rate increases and applies anti-trust laws to insurance companies, which are exempt from such laws in most of the country. Proposition 103 also required insurers to refund over $1.2 billion directly to consumers to compensate for excessive premiums during the 1980s.

In the last four years, FTCR has utilized Proposition 103 to block or dramatically reduce proposed auto, homeowners and medical malpractice rate increases saving California policyholders over $800 million. Click here for an analysis of the savings.

AB 1554, by Assemblyman Dave Jones (D-Sacramento), would apply Prop 103 to health care by requiring health insurers to justify their rates and get approval for increases. Such regulation would reduce consumer premiums by taking on health insurers overhead costs — including advertising, administration, and CEO salaries — which have become the fastest growing component of health care spending. AB 1554 will be considered by the California Assembly Appropriation Committee on Wednesday.

California a profitable market for insurers under Prop 103

Despite the insurance industry’s automatic negative reaction to insurance regulation, California, under the stringent rules of Proposition 103, has been a more profitable environment for insurers than the nation as a whole, the study also explains. For example, between 1995 and 2004, the average annual profits of California auto insurers was 11.1% for private passenger auto insurance compared to 8.5% nationally.

According to FTCR, insurance regulation serves to produce the most appropriate premiums for the risk insured and guards against inadequate, as well as excessive and unfairly discriminatory rates.

Ending Zip-Code Based Rates

Proposition 103 has been consistently been upheld by the courts and its main provisions — the rate rollback and prior approval rate regulations — took effect immediately in May 1989.

Insurers have nevertheless fought the measure with regulators, the legislature and in the courts.

New regulations enacted in 2006 will enforce Proposition 103’s requirement that driving record, not ZIP code, marital status or other factors, play the greatest role in setting insurance rates. Years of challenges to this good driver provision were overturned with the new rules by former Insurance Commissioner Garamendi and insurers must fully comply with the regulations by August, 2008.

Former Commissioner Garamendi also enacted regulations to enhance rate oversight by adding detail and specificity to the rules defining an "excessive" rate. The insurance industry has predictably begun to lobby the new Commissioner, Steve Poizner, to weaken the regulations, but he has pledged to uphold both sets of regulations enacted by his predecessor. FTCR continues to monitor the situation.

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FTCR is California’s leading public interest watchdog. For more information, visit us on the web at

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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