California Only State Where Auto Insurance Has Gotten Cheaper Since 1989, Study Says

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California is the only state where the average price paid for auto insurance has gone down since 1989, according to a report published Tuesday by the Consumer Federation of America.

The report attributed the decrease mainly to Proposition 103, an initiative passed by voters in 1988 that, among other things, required property and casualty insurers in California to justify rate changes and get them approved in advance by the state insurance commissioner, which became an elected position under the proposition.

Consumer Watchdog, the same group behind Prop. 103, has qualified a new initiative on the November 2014 ballot that would give the insurance commissioner authority to approve health insurance rates in California.

In a press conference announcing the auto-insurance report, Consumer Watchdog founder Harvey Rosenfield said his Justify Rates Initiative would replicate the savings that Prop. 103 delivered to motorists for all who must purchase health insurance.

According to the report, auto insurance expenditures nationwide rose 43.3 percent from 1989 until 2010, the latest year for which data is available.

But in California, the average cost fell during by o.3 percent — from $748 per car to $746.
Nationwide, the average cost in 2010 was $791 per auto.

Although California’s cost was below the nationwide average, it ranked 21st highest among the 50 states.

The average costs came from a National Association of Insurance Commissioners report that adds up all the dollars taken in by auto insurance companies in a state and divides by the number of private passenger autos, according to Robert Hunter, the federation’s director of insurance.

The states with the highest increases were Nebraska, Louisiana, Montana, Wyoming and Kentucky.
Although Nebraska showed the biggest increase over the 21-year period — 108 percent — its average cost in 2010 was only $593, which was only 75 percent of the national average and fifth lowest among the states.

The states with the lowest increases were Hawaii, New Hampshire, New Jersey, Massachusetts, and Pennsylvania.

Only California saw a decrease. “It has been monumentally better than everyone else” at keeping costs in check, Hunter says.

The reported noted that Prop. 103 “replaced a regulatory structure that placed virtually no restrictions on how insurers determined rates or what they charged.”

It imposed a 20 percent rate rollback on most property and casualty insurance companies doing business in California, which resulted in refunds to policyholders, and required companies to justify and get the prior approval of the insurance commissioner before imposing any rate change.

It also revamped the rate-setting formula. Instead of basing rates on a customer’s ZIP code, they must be based primarily on the customer’s driving record, number of miles driven annually and years of driving experience. Other factors, such as ZIP code and marital status, can count as smaller factors if they are proven to be statistically associated with risk.

Prop. 103 also required companies to insure any good driver who wants a policy and offer good drivers a 20 percent discount. In other states, companies can turn down good drivers if they don’t like their address or credit score, Hunter says.

“A significant number of people in California understand they have these rights,” which leads to more shopping and therefore lower rates, he adds.

Prop. 103 also repealed the antitrust exemption that insurance companies previously enjoyed in California (and still enjoy in other states.) That was “a very powerful, pro-competitive tool,” Hunter says.

The Insurance Information Network of California, which represents property and casualty insurers, says Prop. 103 was just one of many factors that have kept a lid on premiums here versus elsewhere. Other factors include a decline in highway fatalities, stricter drunken driving and seat-belt laws, and a series of state laws attacking auto injury fraud.

In 1996, California voters passed Prop. 213, the “no pay, no play” initiative. Under this law, uninsured drivers can not receive pain and suffering damages for injuries suffered in an auto accident caused by an insured driver; they can only receive actual damages, such as medical bills and lost wages.

It also cited a 1988 California Supreme Court decision that prevents the victim of an auto accident from suing the at-fault driver’s insurance company for refusing to pay claims fully and promptly. Instead, the victim must sue the other driver. Only if he wins can the victim collect from the driver’s insurance company.

Hunter says these reasons do not explain why premiums in Californians have not risen like they have in other states. He points out that auto fatalities are down nationwide and most states have imposed stricter drunken driving and seat-belt laws.

He said the Supreme Court decision barring third-party, bad-faith lawsuits can not explain why premiums for comprehensive and collision coverage (which only cover the insured driver’s vehicle) have come down in California, along with liability premiums.

Before Prop. 103, California drivers were required to buy auto insurance but “companies could charge whatever they pleased,” says Doug Heller, a consultant who was previously with Consumer Watchdog.

Likewise, the federal Affordable Care Act requires most Americans to buy health insurance but does not limit what insurers can charge.

Consumer Watchdog’s new initiative would give the insurance commissioner authority to regulate health insurance rates in California. It would apply to all health policies including those sold on and off the state’s health care exchange, Covered California. It would be retroactive to 2012, which could result in refunds to consumers if the insurance commissioner found they were overcharged, according to Jamie Court, president of Consumer Watchdog.


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