California Auto Insurance Rates Defy Upward Trend

By Marcy Gordon, AP

While Californians are getting squeezed by electricity costs, they’re getting the best deal in the country on car insurance because of a unique state law, a new study by a consumer group shows.

Auto insurance prices in California declined 4 percent between 1989 and 1998 while jumping an average 38.9 percent nationwide, according to a new survey released by Consumer Federation of America.

Insurance premiums have increased the most in Nebraska, South Dakota, West Virginia, Kentucky and Arkansas, the survey shows. They have increased the least in New Hampshire, Pennsylvania, Massachusetts, Maine and New Jersey.

Consumers nationwide spend an annual average of more than $700 per vehicle and $1,500 per household, totaling $100 billion nationwide, according to Consumer Federation.

California was the only state that showed a decline. At a news conference, Ralph Nader and other consumer advocates credited Proposition 103, passed by the state’s voters in 1988, which tightened insurance regulation.

“California stands out,” said Robert Hunter, director of insurance for Consumer Federation, who prepared the study. He said Prop. 103 brought smaller rate increases, fewer uninsured drivers and more insurance companies to the state — as well as fatter profits for the companies.

State insurance regulators around the country “should look to California for guidance about how to effectively regulate” insurance, said Hunter, a former Texas insurance commissioner.

Prop. 103, among other things, required insurance companies to open their books to justify rate increases, gave drivers with clean records a 20 percent discount, allowed banks to sell auto insurance to stimulate competition and required the state commissioner to provide consumers with rate comparisons.

An insurance industry official denounced Prop. 103 as “government price-fixing” and instead attributed the decline in California’s rates to improved highway safety and greater seat belt use, a crackdown on insurance fraud and legal changes making it more difficult and expensive to file lawsuits in car accidents.

Insurance premiums around the country have declined since 1998 after several years of increases, for those same reasons, David Snyder, assistant general counsel of the American Insurance Association, said in a telephone interview.

Hunter said state-by-state figures were not available for years after 1998.

Nader, who led the campaign for Prop. 103, said insurance companies’ opposition to a similar law for other states is part of a new push by U.S. industry for deregulation, encouraged by the business-friendly Bush administration.

“Deregulation spells death, disease and injury which could be prevented,” he told reporters, citing the deaths the government has linked to Ford Explorers equipped with Firestone tires. Nader has said weakened regulatory powers of the federal highway safety agency were a factor in the crashes.

Consumer Federation and other groups, including Consumers Union, the Center for Economic Justice and the Foundation for Taxpayer and Consumer Rights, are asking state insurance commissioners to consider adopting a California-style law.

Terri Vaughan, vice president of the National Association of Insurance Commissioners, which represents the state regulators, said the group hadn’t studied the new survey yet and had no immediate comment.

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