Tiptoeing Through a Mine Field

In its carefully balanced order on Proposition 103, the California Supreme Court once again has proceeded sensibly through the automobile-insurance mine field. Wednesday’s order takes into account both the will of the electorate and the very real business concerns of the insurance industry. The court’s decision to review the insurers’ challenge of deep premium rollbacks that are called for in Proposition 103 means that voters will learn soon, probably before summer, whether they will ever see the 20% to 35% savings that the initiative promised. The court temporarily blocked the rollback provisions, which cut so deep that, if left in effect, they might have bankrupted some of the state’s smaller, more efficient companies before the justices could rule on their constitutionality. And yet, by allowing the rest of the proposition to go into effect immediately, the court heeds the wishes of the voters for more competition in auto insurance and more scrutiny of the industry.

Consumers should soon see more competition for their insurance dollars. Banks, allowed into the insurance business by Proposition 103, are already seeking licenses to sell insurance. The banks’ entry may also make insurance companies that have threatened to leave the state have second thoughts. Insurance agents now will be able to rebate portions of their commissions to their best customers--something that many have wanted to do for a long time. Insurance Commissioner Roxani Gillespie must proceed with Proposition 103’s directive to develop a system to facilitate comparison-shopping by consumers. And the lifting of the industry’s longstanding exemption from antitrust laws means that, for the first time, collusive and anti-competitive practices can easily be attacked.

Some issues on consumers’ minds, especially whether an insurance company can raise rates or cancel a policy while the state Supreme Court weighs the fate of Proposition 103, are still muddy. On its face, the initiative bans excessive rate increases--which sounds good--but a provision left standing by the high court says that the insurance commissioner cannot make insurers justify their rate increases until Nov. 8, 1989. Proposition 103 is much tougher than existing law on cancellations, too, decreeing that a company must have a good reason--like fraud or nonpayment of premium--to cancel a policy. But until Wednesday that provision was stayed by the Supreme Court. What happens to the many consumers whose companies refused to renew their policies in the past month?

Fortunately, a few thoughtful people in Sacramento have begun to wrestle with such problems, chief among them Assemblyman Patrick Johnston (D-Stockton). Johnston, chairman of the Assembly’s insurance committee, is considering stop gap legislation, perhaps a rate freeze, to protect consumers until the high court rules. And, with Consumers Union, he also has pledged to introduce a bill to establish an auto-insurance system based on New York law. The New York system, which combines generous no-fault coverage with limits on litigation and medical costs, is among the nation’s best; it has controlled insurers’ costs so that premium increases have averaged between 2% and 4% annually.

Harvey Rosenfield, Ralph Nader and Proposition 103’s other fathers claim that it is possible to slash insurance premiums without reducing insurers’ costs, but no other state has been able to perform such sleight-of-hand. Their arguments, which many Californians would like to believe, amount to wishful thinking. No matter how the state Supreme Court rules on Proposition 103, Californians’ ultimate salvation from high insurance premiums lies in finding some way to cut the high costs of automobile accidents and insurance claims. The California Trial Lawyers Assn., the defenders of the tort system and the insurers’ old nemesis, must face up to that, despite their coolness to the New York approach. So must the Legislature.