Consumer Federation Credits Proposition Passed in 1988; Insurers Disagree
Proposition 103, the 1988 California voter initiative that insurers said would be ruinous for them, has created the best-working auto insurance market in the nation, with stable rates, healthy industry profits and a declining number of uninsured drivers, a consumer group’s study concludes.
In the decade after the measure’s passage in a bitterly fought referendum, California’s auto insurance rates dropped 4 percent, and the state went from the third most expensive for driver coverage to 20th, according to the study released yesterday.
The report was written by J. Robert Hunter, director of insurance for the Consumer Federation of America and a former Texas insurance commissioner. Its findings were endorsed by a variety of other consumer groups and advocates, including Ralph Nader and Consumers Union.
The study found that Proposition 103 “incorporates fully all of the necessary changes to accomplish real, full competition” in insurance. The measure subjected the industry to state antitrust law, allowed banks into the field, allowed agents to rebate commissions, required insurers to open their books to justify rate increases, gave discounts to good drivers and allowed consumers to be involved in regulatory issues, among other changes.
Insurers disagreed. David F. Snyder of the American Insurance Association said, “Consumer savings would have been greater than they were without the rigid regulatory system imposed on California in 1988.”
State judicial reforms, anti-fraud measures and improved highway safety were the keys to lower rates, not Proposition 103, he said.
Rates fell more slowly, Snyder contended, “because under the [California] system, it’s so difficult to get a rate approved there may been reluctance to pass on to consumers savings that were occurring in the marketplace.”
The Consumer Federation’s findings come as insurance regulation is poised for an overhaul in the wake of Congress’s deregulation of financial services.
Insurance regulation has long been left largely to the states, but the entry of national banks into the field has raised the possibility of a federal regulatory role. There have been suggestions that some kind of federal charter be offered as an option to insurers in lieu of state regulation.
Hunter said that has frightened the National Association of Insurance Commissioners (NAIC), the organization of state regulators, into relaxing regulation in hopes of making the state system more attractive to insurers.
The NAIC has just begun debate on revamping regulation of personal auto and homeowners coverage; it has extensively deregulated commercial insurance already. Hunter said his report would be presented to the group.
He said the industry likes the idea of a federal option so it can play state and federal regulators against each other, getting both to ease rules to keep from losing companies to regulate.
“That’s why consumers are at great risk,” Hunter said. “Nothing motivates like turf.” If there is to be a national regulatory standard, “let’s make it Prop 103,” he said.
NAIC officials said they are working to make regulation more effective and efficient.
Terri Vaughan, Iowa’s insurance commissioner and the NAIC’s vice president, said: “State regulators realize we exist to protect consumers. Our reason for existence doesn’t exist unless we are protecting consumers. A race to the bottom is the quickest way to destroy state regulation.”