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Have your car insurance rates gone up? Unless you live in California, the answer is almost surely yes.  

You might wonder how that's possible. Surely the loss rate from thefts, accidents and so forth is higher in Los Angeles and San Francisco than in Wichita or Rapid City.

Well, the answer is that California voters, using their powerful initiative process, decided in 1988 that they had had enough of constantly rising auto insurance premiums and enacted tough new regulation of the insurance industry.

As a result, a Consumer Federation of America analysis finds, average California auto insurance expenditure declined between 1989 and 2010, while every other state in the nation saw substantial increases over that same period.

Not only have rates gone up more slowly in California than elsewhere, but auto insurance expenditures are now six percent lower in California than the national average and have declined steadily since 1989. 

Nationally, Americans spent $791 for auto insurance coverage in 2010, $240, or 43 percent, more than they did in 1989, according to the CFA analysis based on data collected by the National Association of
Insurance Commissioners.

Californians spent an average of $746 per year for auto insurance coverage in 2010, $2, or 0.3 percent less per year was spent in 1989 without adjusting for inflation.

The analysis shows that, more than two decades later, California insurance costs are lower than twenty states and six percent lower than the national average, with California the only state to post a decline in auto insurance expenditures. 

Regulatory reforms

The savings in California are directly linked to the regulatory reforms of Proposition 103, approved by California voters in 1988, said J. Robert Hunter, Insurance Director for Consumer Federation of America. At that time, California insurance rates were the third highest in the nation and 36 percent 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,” Hunter said. “In California, as a result, Proposition 103 drivers are paying less for car insurance today than they were 25 years ago.”

Proposition 103, which took effect in 1989, created a “prior approval” system of regulation for most lines of insurance in California, including auto, homeowners, commercial and medical malpractice insurance. 

Under a prior approval system, insurance companies must present any rate change plan to the Department of Insurance and cannot implement any rate hikes or other changes without authorization from the Insurance Commissioner. 

“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,” said Hunter.

(Source: ConsumerAffairs.com)
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