Auto insurance in California costs less than it did 25 years ago

by Harvey Rosenfield and Carmen Balber, Consumer Watchdog

Californians spent less per year on auto insurance in 2010 than they did in 1989, a rate reduction that no other state in the nation achieved according to a new Consumer Federation of America analysis of insurance industry data. California voters approved Proposition 103 in 1988 to regulate auto insurance rates and the ballot initiative set California apart from other states, where premiums rose an average 43% over the same period.

California drivers paid an average of $746 per year for auto insurance coverage in 2010, which is $2.00 less per year than they spent in 1989. Americans nationwide spent an average $791 in 2010, which is $240 more than the average price in 1989, according to the analysis of insurance industry data reported to the National Association of Insurance Commissioners.

“Name another product whose price is less today than twenty-five years ago,” said Harvey Rosenfield, author of Proposition 103. “The Consumer Federation of America has revealed the truth the insurance industry does not want anyone else around the country to know: that requiring insurance companies to open their books and publicly prove they need rate increases results in lower insurance premiums and billions of dollars in savings for consumers. Twenty-five years later, Proposition 103 is a true pocketbook victory for California consumers and a vindication of the initiative process.”

Proposition 103 requires auto, homeowners, medical malpractice and other business insurance companies to publicly justify and get rates approved by the state insurance commissioner prior to taking effect. It created an elected insurance commissioner, requires auto insurance rates be based primarily on driving record, miles driven and experience, and prohibited insurance companies from discriminating against drivers based on ZIP code or whether they had previously been insured.

The Consumer Federation of America analysis highlighted the following key provisions of Proposition 103:

•    A standard ratemaking template establishes transparent and consistent standards by which all insurance company rate proposals are evaluated;
•    Insurance company data and proposals are made entirely public allowing for substantially more scrutiny than other states; and
•    Consumers and consumer groups can request a hearing at the Department of Insurance on improper insurance company rates or practices and are automatically granted a public hearing for large increases. This consumer participation process adds another layer of scrutiny to insurance company rate hike proposals and a measure of accountability for the staff of the Department of Insurance.

The Consumer Federation of America’s 2008 report on auto insurance regulation nationwide concluded that California’s Proposition 103 had saved drivers $62 billion and is the model for rate regulation to protect insurance consumers.

Download that report:

Proposition 103 does not apply to health insurance rates in California. Health insurance prices have increased 170% in California over the last decade, more than five times the rate of inflation, according to the California HealthCare Foundation. Consumer Watchdog’s campaign arm is sponsoring an initiative on the 2014 ballot, the “Insurance Rate Public Justification and Accountability Act,” that will extend Proposition 103 rate regulation to health insurance.

“Requiring companies to justify rates before they take effect, as Prop 103 has done for auto insurance, would bring needed price relief for Californians after years of skyrocketing health insurance rate increases,” said Carmen Balber, executive director of Consumer Watchdog.