The Next President? Who Cares?

By Barbara Rudolph

When it comes to outlandish trends and popular revolutions, California often sets the agenda for the rest of the U.S. The 1978 passage of the state's Proposition 13, which slashed property taxes by nearly 60%, sparked a nationwide taxpayer rebellion. Now Californians may be in the vanguard once again. A powerful grass-roots revolt against painfully high car-insurance rates is roiling the state where people live to drive.

California's car-insurance rates are the third highest in the U.S., trailing only New Jersey's and Alaska's, according to A.M. Best, an industry research firm. (The company cautions that it is difficult to compare rates accurately because insurance laws differ from state to state.) Between 1982 and 1986, Best found, average annual premiums in California jumped 59%, to nearly $600. Nationally, average premiums increased 48%, to $440, during the same period.

California consumer groups have placed on the November ballot a referendum to cut insurance costs and reform the industry. Insurance companies are retaliating with three initiatives designed to reduce their payouts. As advocates of the rival measures trade barbs and hustle votes, they are spending plenty -- $60 million, $40 million of which will come from the insurance industry. It is by far the most expensive state election contest ever waged, costing close to two-thirds of the $100 million that the Republican and Democratic presidential campaigns are expected to spend this year.

For the industry, the stakes are enormous. California's 15 million insured drivers and $9.7 billion worth of annual premiums represented 15% of the national market for car insurance last year. Says Sean Mooney, a senior vice president of the Insurance Information Institute, a trade association: "There is some feeling that if consumers win big there, it would give an impetus to self-styled consumer types and trial lawyers in other states."

A Ralph Nader-backed consumer group called Voter Revolt to Cut Insurance Rates is pushing for Proposition 103, which would slash rates 20% and force companies to win regulatory approval before raising prices again. The insurance companies are staunchly opposed to any new government regulation. The measure would also prohibit firms from charging unusually high premiums solely on the basis of location (see illustration).

Among the measures supported by insurance firms is Proposition 104, which would institute no-fault coverage. Another proviso of the initiative: for the portion of any award over $100,000, a lawyer could charge no more than 15%. In response, the state's trial lawyers have banded together to push their own plan, Proposition 100. It rejects limits on legal fees and mandates changes in the law that would result in 15% lower insurance rates.

Conceivably, the voters could approve all the competing proposals. If that happened, the proposition that gained the most votes would become law in its entirety. Others approved by a majority of voters would also take effect, but would be stripped of provisions that contradicted propositions that got more votes.

Despite the potential for confusion, the outcome may be an uncomplicated win for the Nader-backed Proposition 103. In a statewide poll, 80% of those surveyed said they would reject any initiative backed by the insurance industry and 82% opposed any measure supported by lawyers.

With reporting by Jonathan Beaty/Los Angeles