State Study Citing 40% Rate Hike Adds Fuel to Auto Insurance Issue

The cost of auto insurance to Californians has gone up an average of 40.1% in the last 2 1/2 years, compared to a nationwide average increase of 28% and a general cost-of-living increase of less than 10%, a report by the state Senate’s Insurance Committee said Friday.

These and other statistics were cited in the 54-page staff report circulated to every legislator and to other parties interested in the insurance issue by the committee chairman, Alan Robbins (D-Van Nuys). The figures support a view that auto insurance is approaching a climax as a political issue in the state.

Much of the report was devoted to summaries of the various bills and proposed initiatives that have been offered in recent months to either stem the rise of prices or bring them down.

Warning to Legislature

“If the Legislature fails to assume the responsibility of developing significant reforms to bring down the cost of automobile insurance coverage, then this complex and difficult issue will be left in the laps of the voters through the initiative process,” Robbins said.

The committee’s chief consultant, Sheldon Davidow, said the materials assembled from what he described as “impartial studies” for the report “seem to lead toward prescribing no-fault solutions” for California’s auto insurance problems. The report demonstrated that leaning in some of its analysis of proposals.

Under no-fault systems, which are in force to some degree in 26 states but not in California, a person’s losses in an auto accident are paid by his or her insurance company regardless of who is at fault.

The insurance committees in the Legislature, as well as the insurance industry, often support no-fault as a means of reducing the litigation that is so much a part of the present insurance system. Trial lawyers and the judiciary committees in the Legislature have opposed no-fault.

Recent Price Surge

But Davidow insisted Friday that the apparent leanings of the report toward no-fault reflect more the facts elicited by studies than his or other staff members’ personal views.

Friday’s report says the price surge in auto insurance had intensified in the last 2 1/2 years. For the last 10 years as a whole, it noted, the disparity between auto insurance increases and the increase in the general cost of living were not so dramatic, with the cost of living having gone up 80.9% while auto insurance rates increased 93.4%.

During this 10-year period, average vehicle cost was up 90%, physician’s fees were up 107.6%, hospital room costs up 151% and automobile replacement part costs up 56%, the report says.

While the frequency of insurance claims for bodily injury or property damage was up only 25%, and the density of vehicles on California’s roads was up 35%, bodily insurance claims costs rose dramatically, up 250%, from an average $3,500 in 1977 to about $9,000 in 1986, the report says.

Drunk Driving Problems

It was also noted that alcohol-related injury accidents jumped by 116% in the 10-year period, indicating that drunk driving problems have grown worse.

Meanwhile, the report estimates, auto insurance fraud now costs the state’s auto insurance companies about $500 million a year, or more than 5% of the $8.2 billion in annual premiums now paid.

Auto accident court filings in Los Angeles County were up in just one year, from 1985 to 1986, by 29%, the report says.

The report also took notice of sharp regional differences within California in insurance pricing. Prices have increased twice as fast in urban areas, it said, as in rural ones.

“While the average cost of an auto insurance policy sold in the state was about $600 in 1986, the cost of an average policy in Los Angeles County was about $1,100, while the cost in Eureka averaged approximately $300,” the report says.

Higher Urban Accident Rates

It says these differences in part reflected higher rates of accidents and higher average losses per vehicle from accidents in urban areas.

The report cites statistics provided by the state’s largest seller of auto insurance, State Farm, showing, for example, that the average combined loss for bodily injury and property damage in Los Angeles was $234 per vehicle insured by State Farm in 1986 compared to an average loss in Humboldt County of just $122.

Only seven accidents were reported for every 1,000 policies sold by State Farm in Humboldt County in 1986, compared to 18 accidents for every 1,000 State Farm policies in the same period in Los Angeles County.

And, the report says, the number of suits filed related to State Farm policies in force was almost three times as large for Los Angeles County as for rural Northern California counties.

Release of the report came the same day that the Consumers Union’s West Coast office released results of a telephone survey of 515 adults indicating that 89% would support an initiative that would forbid insurance companies from raising their rates by more than 10% a year unless the increases were approved by the state insurance commissioner.

The survey was conducted by San Francisco State University’s Public Research Institute between Nov. 13 and Dec. 5. It also showed that 76% of those contacted said they believe the insurance industry’s practice of territorial price differentials in auto insurance is unfair.