Here’s How California Saved Residents $100 Billion on Car Insurance

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A 1988 California law saves driving households an average of $345 a year. Why hasn't every other state done this?

In the past 25 years, only one state has seen car insurance prices drop: California.

Nationwide, the average cost of car insurance has risen by 43 percent since 1989, a new Consumer Federation of America report says. In the median state, Wisconsin, rates rose 56 percent.

Poor Nebraska saw average rates jump 108 percent, the report says. Louisiana, Montana, and Wyoming didn’t fare much better, with rates rising more than 95 percent.

The smallest increases were in Hawaii, New Hampshire, New Jersey, and Massachusetts, CFA says. All of those states managed to keep average rates from rising more than 25 percent over a quarter century.

What’s most interesting, of course, is how California managed to lower its average insurance rates. The CFA report takes an in-depth look at that. If you compare California’s rates to the national average increase in insurance costs, the state saved its consumers more than $100 billion in the past 25 years, “as a result of lower auto insurance rates driven by the strong regulatory oversight and more competitive market fostered by the 1988 insurance reform measure known as Proposition 103.”

The report goes into detail about what that law accomplished, but here are some highlights. According to CFA, Proposition 103:

  • Adopted a prior approval system that forced insurance companies to justify any potential rate change to the insurance commissioner before it could take effect.
  • Requires insurance companies to sell auto insurance to any good driver who requests it.
  • Requires insurers to give all good drivers an automatic 20 percent “good driver discount.”
  • Requires insurers to base auto insurance premiums primarily on driving safety record, miles driven and years of driving experience.
  • Prohibits companies from charging customers who went without insurance for a period more.

The report notes that while deregulated states offered the highest profits for insurers, even a prior approval system like California’s allowed for profit. According to the report, we could all have a system like California’s and insurers would still profit.

“If every state in the nation were to implement and enforce a regulatory agenda as demonstrably pro-consumer as that in California,” the CFA report says, “Americans could save over $350 billion over the next decade, even as insurance companies realize reasonable profitability.”

While you’re waiting for your state to institute reforms, here’s a video with some tips on saving on your car insurance. After you watch it, shop your coverage with our insurance shopping tool.

Stacy Johnson

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