Failure to Enforce Prop 103 Cost Motorists $5.2 Billion
Prop. 103 has delivered massive insurance savings for motorists in California relative to the rest of the country. But Insurance Commissioner Chuck Quackenbush‘s failure to enforce 103’s prohibition on insurance company profiteering cost California motorists an estimated $5.2 billion between 1995 and 1997, according to an annual study of auto insurance rates released today.
The average automobile liability insurance premium rose over $100 (36%) in the rest of the nation between 1989 and 1996, the study shows, while California’s average premium dipped $7 (1.4%) during that time ñpowerful evidence of the impact of Proposition 103, the landmark 1988 ballot initiative, which froze rates, mandated rate reductions and instituted limits on insurer profits.
However, if Insurance Commissioner Quackenbush had enforced Proposition 103‘s limits on excessive profits during 1995 and 1996, his first two years in office, the average premium in California would be $100 lower each year than it actually was, the study found. And 1997 profit data show that premiums in the state could have been lowered by 28% and still deliver insurers a fair profit. Between 1995 and 1997, California motorists paid $5.2 billion more for auto insurance than they should have.
The analysis was undertaken for the Proposition 103 Enforcement Project by nationally recognized insurance economist Birny Birnbaum, using data reported by insurers to the National Association of Insurance Commissioners (NAIC) and other sources.
“There’s good news and bad news in this study,” said consumer advocate Harvey Rosenfield, author of Proposition 103. “The good news is that Prop. 103 has lowered rates dramatically in California compared to the rest of the nation, delivering billions of dollars in savings. And, as predicted, 103 has forced the insurance companies to tighten their belts and crack down on fraud. The bad news is that Insurance Commissioner Quackenbushís refusal to enforce 103 has deprived motorists of additional savings — up to $100 per motorist on the average. Profits in California are at obscene levels; what is the Commissioner waiting for?”
California Only State to See Overall Decrease in Average Premium Since 1989
Proposition 103, approved by California voters despite $80 million spent against it (a record to this day), mandated a 20% rollback in auto, homeowner and business premiums; instituted stringent controls on insurance company profiteering, waste and inefficiency; ended monopolistic insurer practices and made the insurance commissioner an elective office. Insurers sued to block the initiative from taking effect; their challenge was rejected by the California Supreme Court five months after the measure’s passage, in a decision upholding the rollback and all other major provisions of the initiative. Over $1.2 billion in premiums were refunded as a result of 103 to six million policyholders.
The NAIC data shows that compared to the nation, Proposition 103 has succeeded in restraining increases in the price of car insurance, particularly in the area of auto liability insurance, in which double-digit rate increases were common prior to the initiative:
- The average auto liability insurance premium decreased by 1.4% in California between 1989 and 1996, while the average premium throughout the rest of the nation increased 35.8% in the same period.
- California is the only state to see a decrease during that period.
- In 1989, California had the 2nd highest average liability premium in the nation. In 1996, California ranked 12th.
- In 1989, Californiaís average premium was over $200 higher than the national average. By 1996, that difference had shrunk to $82.
Average Premiums — and Excessive Industry Profits — Rising Under Quackenbush
Insurance Commissioner Quackenbush took office in 1995, relying primarily upon $2.5 million in insurance industry money. Since then, his administration has been enmeshed in controversy and charges of industry favoritism. The latest available NAIC premium and profit data show that Commissioner Quackenbushís anti-regulation philosophyóspecifically, his repeated refusal to enforce the cap on profits at reasonable levels — is beginning to reverse the previous gains made under 103.
- Throughout the entire term of former Commissioner John Garamendi, Quackenbush‘s predecessor, California had one of the six slowest average annual auto liability insurance premium growth rates in the nation. By 1994, the last year of Garamendi’s term, California ranked 47th. In 1996, however, California climbed up to the 34th highest annual rate of growth in the nation.
- Contrary to statements made in the press by Commissioner Quackenbush, California’s average liability premium in 1996 rose slightly to $512.27, the second consecutive annual increase and the first back-to-back yearly increase since the passage of Proposition 103. By contrast, the state’s average auto liability premium decreased 3.3% between 1989, when Proposition 103 took effect, and 1994. Compared to the 1994 average, this increase alone cost California motorists nearly $230 million in premiums in 1995 and 1996 for auto liability insurance.
- Auto insurance profits in California were 75% higher in California compared to the rest of the nation in 1995 and 72% higher in 1996; preliminary profit data indicates the trend continues in 1997. As a result, according to the analysis, premiums were 17.6% above reasonable levels in 1995, 20.4% in 1996 and 28.0% in 1997. California motorists paid a total of $5.2 billion more than they should have for auto liability premiums during these three years.