NAMIC Urges Halt to Potential Spread of Prop.

August 24, 2001

The National Association of Mutual Insurance Companies (NAMIC) wants regulators to reject demands for legislation modeled on California’s Proposition 103.

The Improvements to State-based Systems (IS3) Working Group of the National Association of Insurance Commissioners (NAIC) heard the demands while considering whether and how to deregulate personal lines of insurance, during an interim session held Aug. 13-14, in Kansas City, Mo.

Proposition 103 was an omnibus ballot initiative that included provisions for a rollback of insurance rates and an elected insurance commissioner. Passage was fueled by consumer unrest with skyrocketing prices for auto insurance, driven by soaring claims costs, litigation, and fraud.

Proposition 103 essentially “mandated” cost cuts without any accompanying reforms to make those cuts sustainable in California’s high cost environment.

The IS3 heard from J. Robert Hunter, director of insurance for Washington, D.C.-based Consumer Federation of America. Hunter reported that since Californians voted in favor of Prop. 103 in 1988, automobile insurance rates in California dropped while rates surged nationally.

Hunter also noted that California has enjoyed the lowest rate change in any state since Prop. 103, and added that incentives for safe driving helped control loss costs.

Roger Schmelzer, NAMIC vice president of regulatory affairs, stated that Hunter’s comments seemed to completely ignore the fact that for 30 years, Illinois has had a competitive rating law that has worked well. Schmelzer added that if Hunter’s approach were to be adopted, he would create New Jersey scenarios all over the country, forcing companies out of the marketplace.

Schmelzer points to the real source of the improvements: a series of enactments over a span of several years to identify, then attack, significant cost drivers affecting the business of insurance. These included mandatory seat belt laws, stronger fraud prosecution laws, aggressive drunk driving enforcement, restrictions on recovery for pain and suffering for uninsured drivers and safer highways.

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