The year was 1988. Arnold Schwarzenegger was still best known as "The Terminator." And in elections, a David and Goliath battled raged between California consumers and big business over Proposition 103
, which was meant to keep insurance companies from price gouging.
Harvey Rosenfield, the founder of Consumer Watchdog
, wrote Prop 103
. It passed, even though the insurance industry poured millions into fighting it.
"Back in the mid-80s, insurance rates were going through the roof," says Rosenfield. "Since the passage of Proposition 103, people have saved $62 billion just on auto insurance because of the formula that limited how much insurance companies could charge us."
Now he says, all of that is threatened.
"Tens of billions of dollars in savings would now go straight into the pockets of the insurance industry from our wallet."
Rosenfield says the reason is State Insurance Commissioner Steve Poizner; he's making changes to the rules for setting insurance rates.
"Auto insurance, homeowner insurance, the insurance businesses pay for liability coverage, even the insurance that doctors pay for malpractice coverage. All of these are regulated by Prop 103. All of them have been subject to a strident formula. And all of them are vulnerable now," says Rosenfield.
Research by the Consumer Federation of America
shows California's Prop 103 did the best job in the nation for auto insurance. Among the findings: California's auto rates dropped 4 percent, while nationwide, rates rose over 25 percent. Before Prop 103, the state's rate of increases was the third highest in the country. But ten years later, the state's increases were the lowest. Even insurance companies thrived; their profits here were the highest in the nation.
"That formula, which has kept money in people's pockets, is now being changed by Insurance Commissioner Poizner," says Rosenfield.
The I-Team found in May 2008, Poizner amended Prop 103's provisions
One involves how insurers determine rates -- whether they can charge more or less. Before Poizner's amendments, all insurance companies had to base changes on the last three years of data.
For example, when the average cost of claims increases over three years, consumers pay more for insurance. When the trend shows the cost of claims going down, consumers should pay less for insurance.
Now, insurance companies can pick and choose their own sets of data.
In 2008, State Farm submitted a request to reduce auto rates by 3 percent. Sounds good, right? Not really. Under the original Prop 103 formula, they should drop rates 14 percent.
"When he ran for public office, as a candidate for insurance commissioner, Commissioner Poizner put in writing that he would never meddle with these provisions of the initiative," says Rosenfield, holding up a printout from Poizner's 2006 campaign Web site
. "He says right here, 'The rules are necessary to provide clear and unambiguous standards that implement the mandate of the voters that rates not be excessive.'"
One of those proposed changes would get rid of a mandatory review of any decreases in our insurance rates. So we'll have to trust the insurance industry that if rates are supposed to drop ten dollars, they will drop the full ten dollars.
Thad Kousser, UCSD Associate Professor of Political Science, says Poizner, a moderate Republican, is positioning himself for a run at governor
"What he's doing here is trying to show that he can work well with business to make California a business-friendly environment, even while he's regulating business as insurance commissioner."
Poizner denies being in cahoots with the insurance industry. His spokesperson Darrel Ng tells the I-Team, "The most major change we are making is to make it easier to lower insurance rates. If an insurance company wants to lower rates, the new system will allow it automatically. There will be no need for the months-long red tape as the application makes it through the system."
Californians do have a say in the latest proposed changes; public comment is being heard now. You can contact the Department of Insurance at www.insurance.ca.gov
For more of our questions and answers with the Department of Insurance, plus details on all the recent changes and proposed amendments to Prop 103, please read the I-Team blog
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