California Proposition 103
The California Proposition 103 was approved through the 1988 elections, as an initiated state statute meant to regulate and reshape the insurance industry within the state. It gave authority to an elected insurance commission to oversee and endorse property as well as casualty rates before they could be affected at any given moment. Such aforementioned insurance rates were primarily focused on homeowners, automobile industry and other general commercial coverage. The purpose of this paper rests with describing the California Proposition 103 that was passed in 1988 in regards to its background and politics. Moreover, it will provide a personal viewpoint in relation to this rate regulation as passed in the California State.
Changes Accommodated by Proposition 103
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The proposition, as stated above, is deemed applicable to the most lines of investment- casualty insurance that involves automobile, homeowners, as well as well as any possible health malpractices. However, it does not apply to the compensation of workers, health or life premiums. Under the statute, all insurance firms are obligated to open their respective books and thereafter justify any rate alterations made to the insurance commission before they can go ahead with raising the insurance rates. It further formulates standards for the company’s profits, allows customers to freely participate in the review of insurer informational data and challenge the proposed rates increases, and also applies an anti-trust regulation to all insurance firms. It is the only industry that has been long exempted from such regulations in most parts of the United States of America. Consequently, the statute requires all insurance firms to avail a discount to all of its customers with a commendable driving history. It also mandates the firms to propose a 20 per cent rollback of excessive premiums incurred in the course of early 1980’s. They resulted in immense insurer refunds of up to $1.2 billion directly owed to customers.
It is important to ascertain that the fundamental reforms that had been provided within the act, which was to take effect in California, involved three factors that were considered in the formulation and setting of automobile insurance rates. This factors included the driver’s immedate safety history, the exact number of miles that was driven in a given year, and the driver’s experience.
Political Background that Led to the Passage of Proposition 103
Harvey Rosenfield is considered as the original author of the statute. Even after its passage he continues to avail professional consultations necessary to enforce its immediate provisions. Ralph Nader was a leading endorser and supporter of the act that prohibited insurance firms from utilizing the absence of a preceding policy as a formidable facet in executing unreasonable insurance rate-setting. This statute was one of four insurance-based regulatory frameworks that were integrated for balloting in 1988 in California. It is crucial to note that it was the only one approved in the vote that year, given that it outweighed other notable statutes, including Propositions 100, 101 and 104.
In the 2010 ballot, The Mercury General Insurance Corporation came to sponsor Proposition 17 that was focused on altering some of the terms of Proposition 103, but was defeated altogether.
I vehemently agree with the changes made to the insurance sector, as they were indeed timely and fundamental. Proposition 103 has greatly influenced California auto insurance premiums in a more dramatic manner, which has led to an enormous shift in money savings that eliminated California based-premiums in a period of about 15 years. It was relevant even as the level of premiums has continued to increase in other states within the United States of America. It can be expounded in numerous ways and in accordance with the data gathered by the National Association of Insurance Commissioners.
Firstly, it is noted that the changes lead to a drop of about 7 per cent in auto liability premium in California in the period between 1989 and 2004 (Consumer Watchdog 4). It is important to understand that before the statute was put into effect, the annual automobile insurance premium covers rose tremendously. Prior to the lifting injunction on Proposition 103, the average premium automobile liability had increased to a significant amount of about $519.39 (Consumer Watchdog 4
Secondly, the changes appllied to the insurance sector were positive, given that they caused a drop of 7 per cent in automobile premiums, while the rest of the nation experienced a 47 per cent raise in their premiums for a period of 15 years (Consumer Watchdog 4-5). The automobile premiums were 52 per cent higher in comparison to the national average in 1989. However, they dropped to 3 per cent of the nation’s average in 2004. Subsequently, while the liability premiums for most of the states increased by about 47 per cent in the course of 1989, California’s liability premiums had already dropped by about 7 per cent (Consumer Watchdog 4-8).
Thirdly, these changes have facilitated a significant reduction in California’s average liability premiums in comparison to the rest of the country immediately after Proposition 103 was put into effect (Consumer Watchdog 6). At the time, the act ascertained that California’s auto premium liabilities were tremendously higher in comparison to the others states within the United States of America. However, with the effect of the statute, the state’s average liability premium continues to fall, while the rest of the states face the challenge of ever-growing insurance premiums. Currently, the state enjoys the 21st position among the states with the most expensive automobile ownership (Consumer Watchdog 6).
Fourthly, the changes have been effective in California given that the overall-post Proposition 103 led to a significant decline in comparison to national trends of higher rates (Consumer Watchdog 7-8). For instance, the statute has allowed a decline in both auto liability premiums as well as comprehensive premiums that have dropped by 4 per cent as the rest of the country experiences a 49 per cent increase annually (Consumer Watchdog 7-8).
In conclusion, it can be ascertained that Proposition 103 came in handy to effect changes that were deemed necessary for improving the rate-setting exercise by insurance firms. The politics behind it rests with providing a good-driver discount policy of about 20 per cent. Also, report any increase in rates to an elected insurance commissioner. It can be noted that the statute has assisted to protect consumers from possible exploitation. Hence, it also helped to provide a cap on the insurance sector.
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