That wise-cracking Geico gecko has just been served a heaping slice of humble pie, courtesy of the state of California.
Recently, Geico asked the California Department of Insurance (CDI) for permission to raise rates on drivers by 4 percent. But the nonprofit Consumer Watchdog got a whiff of the proposal and barked.
Using a state law known as Proposition 103 – which allows citizens to challenge excessive insurance rates – Consumer Watchdog protested the rate-hike request, saying Geico improperly estimated future claims costs.
The upshot for Geico? The insurer that famously promises to save you "15 percent or more" agreed to lower car insurance rates by an additional 10.7 percent beginning Aug. 15, saving California drivers $91 million in annual premium costs, according to the CDI.
Consumer advocates hailed Geico's about-face in California as another Proposition 103 success story.
"There is no doubt that Prop 103 is the prime reason consumers have enjoyed low auto insurance [rates]," says Robert Hunter, insurance director at the Consumer Federation of America.
But Pete Moraga, spokesperson for the Insurance Information Network of California, doesn't quite see it that way.
"If Prop 103 has had such a great impact for consumers, why hasn't a similar law passed in any other state of the union?" he asks.
Moraga says five other factors deserve most of the credit for helping make auto insurance more affordable in California.
"You can't look at one thing in vacuum. You have to look at the whole picture," Moraga says. "And these things have had as great an impact in lowering rates as anything else."
The factors include:
Hunter agrees that several of the factors Moraga cites likely have played a role in reducing car insurance rates in California. But he authored a 2008 study examining the impact of Proposition 103 that concluded the law has been "remarkably effective," saving California policyholders $61.8 billion since it was passed in 1988.
Hunter says he adjusted for factors such as "no pay, no play" laws in his study, and California still led the nation in having the best regulatory system for protecting auto insurance policyholders.
"Prop 103 deserves great credit – by far the most credit – for the results in California," he says. "Excellent regulation works."
Whatever the real reasons for the drop in California rates, it's clear that the Golden State is not alone. Between 2004 and 2008, average annual insurance costs dropped steadily across the entire United States, from $843 per driver to $789, according to the National Association of Insurance Commissioners.
During that time period, just four states – Louisiana, Nevada, Washington and Wyoming – saw costs rise.
Moraga says "changes in auto manufacturing have saved countless lives" – lowering the rate of injuries and accidents and "thus, lowering the costs of auto insurance."
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