According to the Consumer Federation of America, the cost of auto insurance in California decreased over two decades from 1989 through 2010. In fact, California is the only state in the nation which saw a decline in rates, while every other state in the country saw an increase. Despite the general higher cost of living in California, auto insurance rates in the state are lower than in twenty other states, and are six percent lower than the national average.
The CFA attributes the decline in rates to a California law, passed in 1988, which gives consumers better protection from rising auto insurance premiums. Proposition 103 was passed at a time when auto insurance rates in California were 36 percent higher than the national average, and no other state has seen a decline in auto insurance rates over the past 20 years.
The law worked by creating a “prior approval” system which applies to most types of insurance in California, including auto insurance, homeowners insurance, medical malpractice insurance, and commercial insurance. Under the law, insurance companies cannot increase rates without first presenting a rate change plan to the state Department of Insurance. Rate hikes must receive approval from the Department before they can be implemented.
The regulations also require insurance companies to make more of their data available to the public. Additionally, the law gave consumer groups the right to pursue hearings on company proposals.
Some groups, such as the Insurance Information Institute, argue that the cause and lower auto insurance rates in California is overstated. However, one thing remains clear: California drivers who maintain a clean driving record probably don’t have to worry about large rate increases any time in the near future.