Should everyone follow California’s example?

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One of the features supposed to make America a great place to live is the freedom of speech. Everyone has a right to say what they want (within the limits of the law, of course) and no one has a right to stop the publication. So along comes the Consumer Federation of America which duly exercises its right to publish reports on all aspects of American life as it affects consumers. If the CFA believes consumers are being ripped off or treated badly in terms of service, it has the right to publish its evidence. If this damages the brand image of the manufacturers named and shamed, well so much the worse for them. They should not have been abusing consumer trust. If the affected manufacturers feel the CFA’s report has unfairly damaged them, there are civil remedies for them to sue alleging libel. Curiously this resort to the courts is only rarely used. Mostly the manufacturers or service providers either improve their products or services, or they lie low for a while and hope the media will forget.

In November 2013, the CFA published a report alleging the cost of car insurance is out of control in all states apart from California.

The report reviews the annual rates charged by insurers and shows the average increase has been 43% over the last twenty-five years. This makes Wisconsin the median state with an increase of 56%. The outlier at the top end is Nebraska where the rates have risen by 108%. At the other extreme, the rates fractionally fell during the same period. The implication of this report is clear. The regulation of the car insurance industry imposed by the electorate in 1988 through Proposition 103 has led to tight controls but not for health insurance. In other states where the controls are either lax or nonexistent, the rates have risen far faster than inflation and so are too high in real terms.

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The Insurance Industry Institute has reacted angrily to the implication its members are profiteering in states which have not followed California’s example. As an explanation of California’s fall in premium rates, it points to:

• a market with more competition which keeps rates lower;
• less litigation which keeps administrative costs lower; and
• an improvement in the design of vehicles which has reduced the number of accidents.

It alleges the CFA has manipulated the statistics to produce a predetermined conclusion. Although the annual rate of inflation has not risen by 43% over the indicated period, the retail cost of all makes and models has been rising, the cost of spare and replacement parts has followed, and repair shops have increased their labor charges. This has put the annual premium rates under pressure. To some extent, the car insurance industry has been able to offset this rise in the value of claims by automating some of its back-office services, the only way to remain profitable has been by increasing the annual premium rates. Unfortunately for the III, these arguments are less than persuasive. The CFA seems to be on a winner with this report. Long live free speech!

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