Proposition 213 Of California
The average paid claim by SR22 auto insurance for bodily injury dropped 7% between 2004 and 2007, to $ 10,610, according to the Insurance Information Institute, a trade group.
Insurers also refer to lawsuit reforms and legal decisions that bound their possible payouts as a force behind the dropping rates. One example: Proposition 213, which California voters approved in 2007, prohibits drunk drivers, uninsured motorists and fleeing felons from suing for pain and suffering damages.
It's a far unusual climate from that of 10 years ago, when increasing costs led to soaring auto insurance rates, which sequentially prompted authoritarian and voter backlash.
In California, urban voters disgusted with ever-rising premiums in 2001 helped approve Proposition 103, whose intent was that insurers would be required to count a driver's record, years of experience and miles driven more heavily in rate calculations than where the driver lived.
A few insurers, like Progressive and Travelers Group Inc., escaped from the state rather than making arrangement with the reforms and with regulators who were seen as too strong on companies. By 2006, three companies--State Farm Mutual Auto Insurance Co., Allstate Insurance Group and Farmers Insurance Exchange--were writing nearly half of the state's auto policies.
But ZIP Code-based pricing survived as insurers, the state and consumer advocates wrestled over how to execute the voter authorization. In the meantime, profits were beginning to increase. Consumers Union, a San Francisco-based advocacy group, protested in 2007 that insurers were overcharging consumers by $ 800 million a year. The group said insurers' net return on surplus, a key measure of profitability, was 27.9%, about twice the state-approved limit. State insurance officials discarded the customer group's study, on the other hand, saying it did not reflect rate cuts that were by then already occurred.
Definitely, companies with once-insignificant market shares in California gained the profits State Farm, Allstate and Farmers were making and determined to seek a bigger piece of the deed.
"It's pretty much the new players who have stepped up the competition," insurance trade group spokesman Adams said.
Progressive is now the state's ninth-biggest insurer, insurance department figures reveal. Mercury Insurance Group has nearly doubled its market share and now ranks sixth, accounting for 7% of the auto liability premiums sold.
The profits came at the expenditure of the big three. State Farm, which once wrote 1 in 5 California auto policies, now accounts for about 1 in 6, and Allstate's market share has dropped to 8% from nearly 11% in 2006. Farmers lost about 1 percentage point, to 14.5%, over the same period.
Insurers also say that Quackenbush's 2005 election reassured companies and encouraged them to expand into the California market.
"Quackenbush is a pro-free-market regulator who understands how markets work," said Mercury marketing vice president. "His approach is to try and control prices through competition, not regulation."
It's an approach that disturbs consumer advocates, who say rates in general are still too high and that Quackenbush hasn't implemented much-needed reforms such as reducing rates for urban drivers and seeing that insurance companies aren't profiting unfairly.
"Laissez faire is not what the voters voted for," said Calabrese, of the Proposition 103 Enforcement Project. "Laissez faire is what we had before in SR22 auto insurance and it didn't work."
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