Four years ago, when the voters of California enacted Proposition 103, the insurance reform initiative, the property/casualty companies roared defiance and some forecast their withdrawal from the state. Using every obstructive tactic they knew, the large auto insurance companies spent tens of millions of dollars fighting Prop 103 in the courts.
Last week the National Insurance Consumer Organization (NICO) released a 4 year progress report showing that Prop 103 has been a remarkable triumph with more good news to come. By exercising their vote, California consumers bypassed an industry-indentured non-acting legislature and set in motion the following successes: over $4 billion in California personal auto insurance have been saved; cartel pricing has been outlawed; and insurers have increased their advocacy for safer motor vehicles and against fraud. What’s more, Prop 103 has attracted more insurers to California. It requires insurance to be made available to good drivers by all companies and it has stimulated a major company, Progressive Insurance, to initiate a price comparison service for consumers.
Although $2 billion in rollbacks are still being held up in the courts, about $300 million has been refunded already. The delay in refunding the rest of the overcharges is not just due to dilatory lawsuits by insurance companies. Governor Wilson has refused to allow final implementation of the regulations under Prop 103 to become effective.
California has gone from the third highest auto rate increase state before Proposition 103 to the third lowest at present.
Bob Hunter, director of NICO, reports that Prop 103 has stimulated insurance reform efforts in over 40 states. He especially lists significant reforms in New Jersey, Pennsylvania, South Carolina and Texas. ‘Proposition 103 is directly responsible for the rating bureaus’ decisions to stop producing final rates and for increased Congress interest in insurance” said Hunter. Congress is nearing action on ending the insurance industry’s exemption from the federal antitrust laws.
For decades, the powerful insurance lobby could boast that it never lost a major fight with state or federal agencies. The aura of invincibility also flowed from the hundreds of thousands of politically connected insurance agents and the big money the industry pours into political campaign coffers.
Prop 103 ended that dominance, even though the industry spent $804 million in California to oppose Prop 103 and even though it had most of the state legislators under its control or in neutral.
Perhaps the most constructive response to the perturbing effect of Prop 103 was the creation of Advocates for Highway and Auto Safety in Washington, D.C. Funded by several large insurers, Advocates has a board of directors composed of insurance company officials and consumer advocates. Its mission is to press for stronger vehicle safety and property damage prevention standards. Taking on the auto industry is a courageous step for insurance companies but it also is a major way to reduce their claims.
One provision of Prop 103 was to require that the insurance commissioner be elected, not appointed by the Governor. The first elected Commissioner, John Garamendi, has taken his enforcement obligations regarding Prop 103 with refreshing seriousness.
But the most impressive consequence of this California reform is that the insurance companies are becoming more internally efficient in trimming their bureaucracies and stodgy ways.
Changing the insurance companies’ focus from that of a mere cost-plus or pass-through operation to that of a more attentive focus on reducing their underlying corporate costs is no mean achievement. The voters of California did just that!