The California Supreme Court yesterday upheld an insurance reform measure passed by California voters in 1988 that required insurance companies to roll back auto insurance premiums and gave the state insurance commissioner broad powers to control prices and profits.
The ruling clears the way for the commissioner to order insurance companies to refund as much as $1 billion to millions of California auto insurance customers.
The court decision, which was unanimous, also affirmed the authority of the commissioner to require the 700 insurance companies operating in the state to obtain approval for rate changes for all property and casualty insurance that includes homeowner policies.
Before the proposition was passed, California insurance companies were free to charge whatever the market would bear, with no approval required from regulators before raising rates.
"Over time, this will save consumers in the state billions of dollars in premiums" said Harvey Rosenfield, an author of what was known as Proposition 103 in the state's 1988 election and an advocate of insurance reform.
He credited the proposition for a slight decline in auto insurance rates since 1988, down from double-digit increases in previous years.
In arguments before the state Supreme Court, insurance companies said the proposition and the actions of the commissioner were illegal because they amounted to a confiscation of property and did not allow them to earn a fair return.
"This is a bad day for free enterprise," said Kim Brunner, a vice president of State Farm Insurance, based in Bloomington, Ill.
State Farm has disputed whether it owes a refund on auto insurance policies as called for by Proposition 103 and has a request pending with the commissioner for an 8.3 percent increase in homeowners insurance.
Four more companies have been ordered by the commissioner to pay refunds, but have refused. The largest amount owed by any one of them is $235 million by State Farm, the state's largest insurer. Other large companies which have not yet paid refunds include USAA, Nationwide, Farmers Insurance and 20th Century.