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California Only State Where Auto Insurance Has Dropped In 25 Years

By Aaron Crowe

A 1989 California law that requires insurers to get approval from state officials for rate hikes has resulted in California being the only state to see rates drop during that time.

Between 1989 and 2010, while every other state saw substantial increases in auto insurance expenditures, California drivers saw their insurance costs drop 0.3% without adjusting for inflation, according to an analysis by the Consumer Federation of America.

Nationally, Americans spent $791 for auto insurance coverage in 2010, or $240 — 43% — more than they did in 1989, according to the CFA analysis of data from the National Association of Insurance Commissioners. Californians spent an average of $746 for the same coverage in 2010, or $2 more, than in 1989.

During that time, 37 states saw larger increases than the national average. Eight states and the District of Columbia saw increases smaller than the national average, but still saw increases of more than 25%. Four states had increases of less than 20%.

California’s drop is attributed to the state’s strong oversight of the insurance industry created by passage of Proposition 103 in 1988, when California’s insurance rates were the third highest in the nation and 36% higher than the national average.

“No other state has put in place the kind of strong oversight that California voters created in 1988, and no other state has seen auto insurance prices decline,” says J. Robert Hunter, insurance director for CFA, in a statement. “In California, as a result, Proposition 103 drivers are paying less for car insurance today than they were 25 years ago.

The law created a “prior approval” system of regulation for most lines of insurance in California. Insurance companies must present any rate change plan to the Department of Insurance and can’t raise rates or make other changes without authorization from the state Insurance Commissioner.

Insurance company data and proposals are made entirely public, allowing for much more scrutiny than other states, according to the CFA.

Another benefit of the law is that consumers and consumer groups can request a hearing at the Department of Insurance on improper insurance company rates or practices, and they’re automatically granted a public hearing for large increases.

“California’s version of prior approval regulation includes additional protections that have made the state’s insurance system much more effective than any other states’ systems,” Hunter says.

Now, more than 20 years later, California’s auto insurance rates are lower than 20 states, and 6% lower than the national average.

The four states with less than a 25% increase in auto insurance expenditures from 1989 to 2010 are: Hawaii at 13.7% more, New Hampshire at 15.9%, New Jersey at 17.7%, and Massachusetts at 22.3%.

The top five states with the highest percentage change during that time were: Nebraska at 108.1%, Louisiana at 96.1%, Montana at 95.4%, Wyoming at 95.1%, and Kentucky at 92.3%.

Below is a chart provided by CFA on percentage change in auto insurance expenditures from 1989 to 2010.