California Proposition 101, Automobile Accident Claims and Insurance Rates (1988)

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California Proposition 101 was on the November 8, 1988 statewide ballot in California as an initiated state statute where it was overwhelmingly defeated.
  • Yes: 1,226,735 (13.3%)
  • No: 8,020,659 (86.7%) Defeatedd

Proposition 101, if it had passed, would have required insurance companies to reduce the bodily injury liability and uninsured motorist portions of motor vehicle insurance rates. It also would have limited claims for noneconomic losses (such as "pain and suffering") and attorney contingency fees, and it would have expired at the end of December 1992.

Proposition 101 was one of four ballot propositions on the same ballot related to insurance costs and regulations in California. Proposition 101 was said, by its opponents, to be favorable to insurance companies. Opponents wrote in their official ballot argument, "Proposition 101 was drafted and is supported by insurance companies. Official records of the California Secretary of State show that as of July more than $1.7 million, over 92% of Proposition 101's budget, was contributed by one insurance company and its holding company. That's why Proposition 101 is great for insurance companies and bad for consumers."

The far-reaching Proposition 103 is the only insurance proposition that was approved. It bested Proposition 100, Proposition 101 and Proposition 104.

Ballot summary

The official ballot summary said, "Reduces bodily injury, uninsured motorist rates to 50 percent of October 31, 1988, or October 31, 1987, level, whichever is lower, adjusted for medical inflation. Limits motor vehicle accident recovery for noneconomic losses such as pain and suffering to 25 percent of economic losses, as defined. Prohibits attorney contingent fees greater than 25 percent of economic losses, as defined. Limitations not applicable to survival, wrongful death actions or actions involving serious and permanent injuries and/or disfigurement. Provisions expire December 31, 1992. Summary of Legislative Analyst's estimate of net state and local government impact: Would increase state administrative costs by about $2 million in 1988-89, varying thereafter with workload, to be paid by additional fees on the insurance industry. State and affected local governments would have unknown savings from reduced insurance rates and loss limitations. Possible reduction in court costs and court revenues could result from limitation on claims for noneconomic damages. Would reduce state revenues from the gross premiums tax by about $50 million a year for next four years if no other changes are made in insurance rates."

Fiscal impact

The fiscal estimate provided by the California Legislative Analyst's Office said:

Costs

Department of Insurance. This measure would increase the Department of Insurance's administrative costs by about $2 million during 1988-89. In years following, these costs could be somewhat lower or higher, depending on workload. These costs, payable from the Insurance Fund, may require additional fees and assessments to be levied on the insurance industry.

State and Local Governments. While some local governments purchase insurance, most "self-insure" by relying upon their own resources to pay for losses and claims resulting from motor vehicle accidents. The state also is self-insured against such losses and claims. Because this measure reduces certain types of motor vehicle insurance rates, and limits claims for noneconomic losses, it would result in unknown savings to the affected state and local governments.

Courts. Because this measure places limits on court actions for noneconomic damage claims, it may reduce, to an unknown extent, annual state and local court costs and local court revenues.

Revenues

Insurance companies pay a tax, based on the amount of gross premiums they receive each year from insurance sold in California. These tax revenues are deposited in the State General Fund.

This measure requires that the rates for the bodily injury liability and uninsured motorist components of motor vehicle insurance policies be reduced. These two components account for about 40 percent of total motor vehicle insurance premiums. The required rate reductions -- by themselves -- would reduce state insurance tax revenues by about $50 million a year. This estimate assumes that no offsetting adjustments are made in other insurance rates -- not restricted by this measure -- to compensate for these reductions. Whether such adjustments would occur is unknown.

The rate reductions required by this measure will expire after four years, at the end of 1992.

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