California Voters’ Passage of Proposition 103 28 Years Ago Pays Off Again Today

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Santa Monica, CA – The landmark insurance reform passed by California voters on Election Day twenty-eight years ago is paying off again today. Over 1.7 million State Farm homeowners, condo owners and renters will collectively receive more than $100 million in refunds and save $156 million per year in premiums under an order issued late yesterday by Insurance Commissioner Dave Jones pursuant to insurance reform Proposition 103.

On November 8, 1988, after a David v. Goliath battle that pitted voters against the insurance industry and most of the state’s political establishment, California voters required all home, auto and other liability insurance companies to apply for and obtain the Commissioner’s approval for proposed rate increases.

In December 2014, State Farm requested a 6.9% overall rate hike for its home, condo and renter insurance. After a lengthy hearing, requested by Consumer Watchdog and the Consumer Federation of California, Commissioner Jones agreed that State Farm had failed to justify its rate hikes and ordered State Farm to:

• Issue refunds, currently valued at over $100 million, for the excess insurance premiums State Farm had collected from its customers since July 15, 2015.

• Decrease homeowners, condo owners, and renters’ insurance rates by an average of 7.0%, or about $78.6 million per year. Since State Farm had requested rate increases of about $77.4 million per year, policyholders were protected from a total of $156 million per year in overcharges.

The 7% overall rate reduction ordered is comprised of a 5.37% overall reduction ordered on State Farm’s homeowners insurance rates, a 20.39% overall reduction to its renters insurance rates, and an 13.81% overall reduction in the insurance rates paid by condo owners.

“This decision is a tremendous victory for consumers, and we applaud the Insurance Commissioner for making the right decision,” said Jonathan Phenix, one of Consumer Watchdog’s lawyers in the case.

Proposition 103 Reforms Have Saved California Motorists Over $100 Billion

Proposition 103 not only bars insurance companies from charging excessive auto, home, business, and other property casualty insurance rates. The measure also authorizes consumers to request hearings to challenge illegal rates and other insurance practices, as Consumer Watchdog did in requesting the hearing on State Farm’s rate application.

Prop 103 also requires insurance companies to set premiums based primarily on a driver’ safety record, annual mileage driven and years of driving experience, and give good drivers a special 20% discount; requires insurers to comply with the state’s civil rights, consumer protection and antitrust laws. And it made the Insurance Commissioner, formerly a gubernatorial appointment, an elective post.

The Insurance Industry Spent Over $80 Million Trying To Defeat Proposition 103

Insurance companies were required to refund over $2 billion to consumers after the initiative passed and was upheld against more than 100 court challenges brought by the insurance industry. The Consumer Federation of America declared Prop 103 the most pro-consumer insurance law in the nation, estimating it has saved California motorists alone over $100 billion since it took effect in 1989, according to a 2013 report.

“California voters passed Proposition 103 to end insurer price-gouging in California,” said lead trial counsel Todd Foreman of the Zohar Law Firm in Los Angeles. “Today’s ruling will put millions of dollars back into the pockets of overcharged consumers, demonstrating that consumers are protected only when insurance companies are forced to open their books and justify their rates.”

State Farm Pleads Poverty

On December 4, 2014, State Farm requested a 6.9% overall rate increase, effective July 15, 2015, in its home, condo, and rental insurance rates. After analyzing the application, Consumer Watchdog concluded that State Farm’s requested rate increase was unjustified and that its current rates were excessive. It filed a challenge to State Farm’s request on January 1, 2015.

A hearing began before Administrative Law Judge John A. Larsen on November 16, 2015. State Farm argued that having to reduce its rates would violate its constitutional rights. In response, staff attorneys for the Department of Insurance and consumer groups noted that State Farm had collected $12.22 billion in after-tax profits nationwide between 2010 and 2014 – in 2014 alone, State Farm raked in $4.6 billion in after-tax profits – and that cutting rates would impose no financial hardship. The groups also noted that State Farm had excluded about $105 million in investment returns made by the entire company and was improperly asking policyholders to make up this difference by paying higher rates. In a thorough, 95-page proposed decision dated July 6, 2016, Judge Larsen agreed that State Farm’s rights were not violated and rejected State Farm’s proposal to hike rates; the judge also determined that State Farm had failed to follow the rules governing excessive rates. Judge Larsen proposed that the Insurance Commissioner order State Farm to decrease its rates and issue refunds, with interest.

After reviewing the Administrative Law Judge’s Proposed Decision, the Commissioner requested further evidence on the appropriate interest rate on the ordered refunds. Following that inquiry, Judge Larsen amended his Proposed Decision to add a detailed discussion of the interest rate to be ordered on refunds, concluding that State Farm be required to repay the estimated interest it had earned on the money it will be refunding to consumers. Commissioner Jones officially adopted the amended Proposed Decision on Monday, November 7.

State Farm Tries to Hide Evidence from the Public

One of Proposition 103’s core reforms requires insurance companies to disclose to the public all the information submitted in support of an application to change their rates. Flouting this requirement, State Farm asked Judge Larsen to deviate from the formula used to calculate insurance rates and conceal from public scrutiny evidence that didn’t support State Farm’s argument. However, Judge Larsen declined to follow State Farm’s argument and found that Proposition 103’s sunshine provision guaranteed the public’s right to access to documents that support a rate change. “[I]f cost and pricing information were required to be kept confidential as a trade secret,” Judge Larsen wrote, “little actuarial data in rate hearings would be left for the public to inspect. Such a result would undermine Proposition 103.”

State Farm’s History of Proposing Overcharges

This year alone, Consumer Watchdog successfully challenged two other excessive rate changes proposed by State Farm: Earlier this year, State Farm agreed to abandon proposed rate hikes on small businesses and instead implemented an average overall rate decrease, saving 80,000 policyholders $7.8 million. And just last month, State Farm agreed to slash dwelling insurance rates by an overall 40%, saving 280,000 policyholders approximately $100 million.

Since 2003, State Farm insurance policyholders have saved nearly $1 billion after Consumer Watchdog challenged the excessive rates initially proposed by State Farm.

Read the Insurance Commissioner’s November 7, 2016, decision ordering State Farm to decrease overall rates and issue refunds:

Read Consumer Watchdog's April 11, 2016 brief in support of rate refunds and decreases for State Farm's customers:

Read more about Proposition 103:

About Consumer Watchdog and Zohar Law Firm, P.C.

Consumer Watchdog is a non-profit non-partisan organization. It has invoked the public participation process under Proposition 103 to save auto, home and medical malpractice insurance policyholders over $3 billion since 2003.

Consumer Watchdog's trial counsel in this proceeding are Todd Foreman and Daniel Y. Zohar of the Zohar Law Firm, P.C. in Los Angeles. The Zohar Law Firm has achieved landmark successes in prior rate hearings, saving consumers hundreds of millions of dollars, and also handles business and entertainment litigation throughout California.

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Carmen Balber
Carmen Balber
Consumer Watchdog executive director Carmen Balber has been with the organization for nearly two decades. She spent four years directing the group’s Washington, D.C. office where she advocated for key health insurance market reforms that were ultimately enacted into law as part of the Affordable Care Act.

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