California Auto Insurance Rates Decrease, Bucking U.S. Trend

California auto insurance buyers are paying less for coverage than they were two decades ago while rates rose substantially for the rest of the country, says the Consumer Federation of America.

The consumer group attributes the decrease to the state’s regulatory reform under Proposition 103, which mandates prior approval for rate increases.

“No other state has put in place the kind of strong oversight that California voters created in 1988, and no other state has seen auto insurance prices decline,” says CFA Insurance Director J. Robert Hunter.

However, Insurance Information Institute President Robert P. Hartwig disputes this, and points to competition as the major reason for decrease.

“This is an old saw getting a little worn,” says Hartwig.

Based on data from the National Association of Insurance Commissioners, CFA says its analysis shows rates in California decreased 0.3 percent over the period 1989—when Proposition 103 took effect—to 2010, the only state to see a decline.

Californians spent an average of $746 per year for auto insurance coverage in 2010—$2 less per year than they spent in 1989 without adjusting for inflation, the group says. Nationally, consumers spent $791 for auto insurance coverage in 2010—$240, or 43 percent more than they did in 1989.

During the same period 37 states saw larger increases than the national average. Eight states and the Washington D.C. saw increases smaller than the national average, but still over 25 percent. Only four states saw increases less than 20 percent. Nebraska, Louisiana and Montana had the highest rate of increase at 108.1, 96.1 and 95.4 percent, respectively.

Hunter says in 1988 Californians were paying the third highest rates in the nation and rates were 36 percent higher than the national average. He says there is a direct link in savings between the regulation that allows consumer groups to request hearings on increases and releases company data and proposals to the public for scrutiny.

Hartwig says California is a large auto market that attracts a lot of insurers. The mix of higher cost urban and lower cost rural markets helps to balance the average. He also points to Massachusetts and New Jersey, where insurance reforms meant to kickstart competition produced markets where rates rose modestly—17.7 percent for New Jersey and 22.3 percent for Massachusetts.

While rates increased an average of 43 percent over the 21 year period, Hartwig says the Consumer Price Index was up 75 percent, and credits insurers with keeping increases below that average in the face of rising medical and auto repair costs. As for the 13 states above the CPI average, he believes there are other elements to the story—for example increased population and a wealthier populous purchasing more expensive cars—contributed to the increase.

Pete Moraga, a spokesman for the Insurance Information Network of California, agrees that competition has played a role in the decrease in rates, but there is more at work here. He notes driving fatalities have dropped in half to 1.19 per 100 million miles driven since Proposition 103. The state has aggressively implemented the use of safety equipment in autos and toughened driving laws, plus tort reform measures that include Proposition 213 that prevents uninsured motorists in an auto accident from seeking compensation for pain and suffering.

“These factors have all contributed to the drop in insurance rates,” says Moraga. “Proposition 103 cannot be viewed in a vacuum. The real question is where would rates be today without the law.”

Public Affairs Director, Western Region Nicole Mahrt Ganley, of the Association of California Insurance Companies and the Property Casualty Insurers of America adds aggressive and coordinated fraud fighting and vigorous enforcement of DUI laws also contributed to getting rates under control.

“Proposition 103 did nothing to solve the underlying problem, but rather took attention away from rising costs and offered a quick fix in the form of premium reductions,” says Ganley.