Automobile Insurance Regulation, Direct Democracy, and the Interests of Consumers

The most recent consumer crusade occurred in California, where voters approved Proposition 103, a system of price and regulatory controls on property and casualty insurance. This law was the response to the unwillingness of the state legislature to deal effectively with a perceived crisis caused by escalating automobile insurance rates. Prior to the enactment of Proposition 103 and in the push for insurance reform, insurers wanted to end or to reduce subsidies and limit lawsuits and resulting litigation costs, trial lawyers opposed no-fault insurance plans and other proposals to limit litigation, and legislators sought to turn the political heat on the insurance commissioner or the governor. The developing system of insurance regulation in California is likely to lead to artificially low rates and low-quality service, increased political tensions as a result of cross subsidies, higher costs, increased litigation, and an inefficient allocation of resources overall.