A report just out from the Consumer Federation of America found that, over the past 25 years, auto insurance expenditures in the United States have increased by a sharp 43 percent -- despite all the advancements in auto safety and new players entering the auto insurance market. Only one state saw insurance prices fall -- California. For that, we can thank the consumer advocates who pushed for the 1988 passage of Proposition 103, which enabled voters to enact the strongest pro-consumer insurance regulations in the nation.
Proposition 103 was a response to a 1984 law that required California drivers to have auto insurance. The insurance companies jumped on this by drastically raising their rates to squeeze as much profit from motorists as possible. Consumers were obviously not pleased. Prop 103 advocates fought back by drafting an initiative proposal requiring insurers to roll back their rates by 20 percent as well as provide an additional 20 percent discount for drivers with good safety records, as well as other vital regulations to keep the insurance industry in check and eliminate ways in which insurers took advantage of policyholders.
As one might expect, the large auto insurance companies used every obstructive and deceptive tactic in the book to oppose this law -- spending upwards of $80 million fighting it. Up until that point, the powerful insurance lobby had never lost a major battle with state or federal agencies. Most state legislators were firmly under industry control or locked in neutral. Big money and political connections had provided them an aura of invincibility. So when Consumer Watchdog's Harvey Rosenfield and I launched the drive to pass Prop 103, many people thought the effort was hopeless.
But big money and powerful connections were not enough to quell the voices of California consumers who loudly proclaimed that "Prop 103 is the one for me." The passage of Prop 103 was a monumental accomplishment and an example of what can happen when people band together for a cause and show up at the polls. Hopelessness is merely a sentiment for the apathetic.
Rosenfield, who was the author of the measure, recently said: "Proposition 103 proves that when citizens join together, they are an unstoppable force."
The recent report by Consumer Federation of America's J. Robert Hunter, an insurance actuary, and his colleagues titled "What Works? A Review of Auto Insurance Rate Regulation in America" documents the spectacular successes of Prop 103.
Since 1988, over 100 billion dollars have been saved by California consumers which equals "an average annual savings of $345 per household, or $8,625 per family over the entire period." Under Proposition 103′s rate rollback requirement, refunds totaling $1.3 billion were paid back to consumers. It banned discriminatory practices such as credit scoring and rating based on prior insurance coverage. It provided consumer intervenor funding which allows public challenges to rate hikes. All these benefits and more equal more consumer peace of mind and a more competitive but still profitable auto insurance industry -- indeed, California insurers made higher than average profits compared to insurance companies in other states during the study period. "When I was asked by the California legislature in 1986 to draft a report telling them how to fix the auto insurance price skyrocket, the leaders of the legislature scoffed at our ideas (and collected millions in campaign money from the insurers to reject the plan out of hand). But then the people spoke," said Hunter. When government is captive to special interest it fails to act, crushing good ideas. But ideas soar into full bloom when the people take over and, not blinded by corruption, do what is right."
A California's Prop 103-type reform should be enacted in other states that still allow insurance companies to gouge, irritate and arbitrarily discriminate against their policyholders. According to Hunter, Americans could save $350 billion over the next decade without any serious repercussions for the insurance industry. He said: "When it comes to regulating an industry as large as the auto insurance industry that impacts so many millions of Americans who are required to purchase insurance, we ask of policymakers and regulators the same question we asked when we first began reviewing auto insurance systems around the country more than a decade ago: Why not the best?"
Let the success of Proposition 103 serve as the ultimate counterpoint to big industry lobbyists who regularly bad-mouth regulation as an undue burden on profitable business. When the system works and the companies become more efficient and less capricious -- it benefits everyone.
(Autographed copies of my book Told You So: The Big Book of Weekly Columns are available from Politics and Prose, an independent book store in Washington D.C.)
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