Like many Californians in the fast lane, Julie Kulas believes that the good life calls for a sleek and stylish car. So when the Los Angeles banker bought a new auto two years ago, she chose a $20,000 Porsche. That was the easy part. When she went shopping for auto insurance, two companies refused to insure the sports car. Stunned by their rejection, Kulas wound up with a firm that charges $4,600 a year to insure the Porsche and her husband’s BMW. Says she: “This is outrageous. We’re being penalized just because we have nice cars. We could buy another one for the amount we pay in insurance every year.”
The Kulases joined millions of angry fellow travelers earlier this month in a consumer revolt that could roar out of California like a muscle car. By a 51%-to-49% count, the voters approved Proposition 103, which will slash insurance rates to 20% below November 1987 levels. Good drivers will get yet another 20% off. Although the vote covered all types of property and casualty insurance, the auto-premium cuts were the heart of the measure. The most breathless of its proponents expect its impact to rival that of Proposition 13, the 1978 California initiative that set off a coast-to-coast fight against high property taxes. “The genie is out of the bottle,” says Harvey Rosenfield, 36, the author of Proposition 103. “This is the taxpayer rebellion of the ’80s.”
The time may be ripe. Since 1983, auto-insurance premiums have climbed three times as fast as the inflation rate. Among the causes: bad roads, rising medical costs and growing traffic congestion. In New Jersey, where drivers pay the highest average rates in the U.S., a group of consumers pounded a car with a sledgehammer last February to demonstrate their rage. Each state regulates insurance separately, a practice that contributes to wide price differences from place to place. Several Midwestern states have been able to control insurance costs to some degree by passing strong no-fault laws, under which drivers file claims with their own insurers instead of bringing expensive suits against one another.
Yet in dozens of places where premium increases show no sign of slowing, Proposition 103 could become a rallying cry. Robert Hunter, president of the National Insurance Consumer Organization, a Virginia-based group, says he has been “deluged” with calls from drivers eager to have their own states cut rates.
The proving ground is California, where insurance firms are fighting back. Declaring that Proposition 103 would unleash a “wrecking ball” against them, the insurers rushed into court and obtained an order blocking the measure until the state supreme court can decide whether it is constitutional. At least eight auto insurers have already pulled out of California, even though the state’s 13.5 million insured drivers account for more than 14% of all U.S. car-insurance business. State Farm Mutual, California’s largest auto underwriter, stopped issuing new policies last week and referred new California customers to a subsidiary that charges 20% higher rates.
All sides agreed that California’s car premiums have careered out of control. Insurers, who blamed runaway medical expenses and repair bills, also accused the state’s trial lawyers of persuading clients to bring unnecessary suits. Consumer activists replied that insurers were still making healthy profits in the state and noted that companies were able to spend $70 million to fight Proposition 103 and promote alternatives on the ballot. (The measure’s sponsors, led by Rosenfield and consumer advocate Ralph Nader, spent $2.3 million to get it passed.)
In New Jersey, which has the highest traffic density in the U.S., motorists were stunned last summer to learn that state-imposed surcharges had increased their car premiums by some 20%. The sudden increase reflected the state’s need to bail out a fund that insures high-risk motorists and has fallen $2 billion in debt. While New Jersey lawmakers toughened the state’s no-fault insurance laws, they remain too weak to prevent motorists from bringing costly lawsuits.
Massachusetts, another high-premium state, is trying to give drivers a break. A week before the vote in California, Massachusetts legislators approved a reform bill that will slice 16% off the state’s tightly controlled auto rates in 1989. Aimed at easing a 27% jump in premiums over the past two years, the measure includes several cost-saving features to placate insurers. Yet such provisions could not halt a continuing exodus that has seen six major firms abandon the state since 1986. Allstate joined their ranks last week, when the Sears subsidiary said it would stop selling policies in Massachusetts to escape the state’s stringent regulations.
Many car owners are responding to high insurance rates in risky ways. While most states require motorists to have policies, a growing number of drivers are hitting the road — and each other — without insurance. In Florida’s Dade County, which includes Miami, more than 50% of all motorists have no coverage, according to state officials.
The rural and industrial heartland could prove resistant to an insurance revolt. Cushioned by strong no-fault plans in some states and, frequently, less crowded highways, Midwesterners have among the lowest auto premiums in the country. Even motorists in such cities as Cleveland and Chicago have lower rates than their counterparts elsewhere. Chicago has extensive mass transit, for one thing, and the city’s drivers tend to file fewer lawsuits than drivers in Boston or Los Angeles.
The California insurance quake may soon draw the attention of Washington lawmakers. While virtually no politician wants the Federal Government to regulate insurance, a broad coalition of consumer and other groups has urged Congress to end an antitrust exemption that insurers have enjoyed since 1945. The groups say the repeal would promote competition and drive down rates. So far, the industry has easily turned back the challenge. “Auto-insurance prices are driven by underlying costs,” argues David Farmer, vice president for federal affairs of the Alliance of American Insurers. Removing the exemption, he says, will do nothing to cut hospital bills or stop people from suing.
Even so, a spread of the California revolt might compel Congress to get into the regulatory act. “If California takes off,” says a congressional aide, “auto insurance could become a significant national issue.” In that case, insurers could find that Washington politicians have suddenly become itchy to take the wheel.
CHART: NOT AVAILABLE
CREDIT: Source A.M. Best Co. TIME Chart
CAPTION: Cost of Coverage
Average 1986 premiums for private passenger cars
