When an obscure provision of a state’s 1988 insurance law makes the news, it’s often confined to the pages of Insurance Journal. However, when the world’s richest man tweets about that law in the course of a Twitter spat with a state insurance commissioner, it makes mainstream headlines.
Sound strange? Not only did it happen recently, but it could actually be the start of an effort to improve the nation’s most notorious insurance law.
It all started when Tesla CEO Elon Musk remarked the carmaker’s Jan. 26 earnings call that, while the company’s Tesla Insurance project had rolled out a telematics-based product for Tesla drivers in Texas, Illinois, Ohio and Arizona, in their old home base of California, the strictures created by the state’s Proposition 103 regulatory regime had thus far limited them to offering standard auto insurance.
“It should be clear, like we are pushing very hard for California to change the rules to allow informatics, which basically means that you’re as safe as you’re driving is measured,” Musk said. “So, I think the current California rules are contrary to the best interest of the consumers in California and should be changed.”
That comment prompted California Insurance Commissioner Ricardo Lara, himself an elected politician, to take to Twitter the next day and lob a salvo back in Musk’s direction.
The Department of Insurance continues to uphold and implement the consumer protections set forth in voter-enacted Proposition 103 & since 2009 we have allowed vehicle data only to determine actual miles driven, and only in a way that protects the driver’s privacy. (2/2)
— Ricardo Lara (@ICRicardoLara) January 27, 2022
Musk, of course, responded in his trademark style:
You should be voted out of office
— Elon Musk (@elonmusk) January 27, 2022
Understandably, most attention went to the absurdity of the exchange. But while the posturing made for entertaining Twitter, the meat of the controversy—Musk’s proposal to amend Prop 103—is widely understood to be basically impossible.
That’s because, as Lara well knows, Prop 103 isn’t changing unless Musk or someone else wants to spend the more than $100 million it would likely to take to mount an initiative campaign to overturn the law. By its very terms, Prop 103 cannot be legislatively amended in a manner that will improve it. More concretely, it cannot be amended unless it “furthers the law’s purposes.”
But what if the law’s purpose ran against a more important policy goal? Could a court consider upholding a legislative modification? Perhaps. And here’s where things get interesting.
Recent empirical literature establishes a strong connection between driver safety and telematics. Which is to say that drivers who elect to use telematic devices to track their driving habits in the hope of achieving better rates respond to those financial incentives in ways that make them safer than drivers who do not. In no uncertain terms: telematics programs save lives. And not just a few lives at the margin; a 2018 paper in The Journal of Law & Economics found that “enrollees reduce their fatal accident risk by approximately 50%.”
It’s likely that insurance companies have known this for years, based on their own internal data. After all, it’s in their interests to see the frequency and severity of accidents stay low so that they can offer aggressive rates in a market with compulsory participation. But the now more broadly understood point—that the use of telematics is associated with better safety outcomes—straightforwardly confounds the policy purpose of Prop 103.
Can it be reasonably maintained that the policy purposes of Prop 103, in prohibiting the use of telematics, should be afforded greater weight than the profound safety gains that the technology affords? Well, perhaps. As Lara’s tweets point out, there are other compelling policy interests (notably, privacy) implicated by Prop 103.
But while Lara proclaims that he’s protecting consumer privacy, that lofty rhetoric is diminished in the face of the availability of telematics products in every other state in the nation. Indeed, barring exposure to out-of-market television ads, Californians may not even be aware that this isn’t bleeding-edge tech with some unknown nefarious application. Insurance regulators throughout the country have overseen the collection and use of telematics data for pricing purposes for more than a decade.
What de minimis privacy gains do Californians enjoy relative to their countrymen? More importantly, what privacy “protections” are they being made to endure in exchange for higher rates and deadlier roads?
Considered in this light, perhaps Prop 103’s explicit text is so egregiously against a broad public policy concern for human life that California courts might consider upholding a modification to its text offered by the Legislature. In light of judicial precedent, and extreme deference to an initiatives text, I’d wager not. But, still, trying couldn’t hurt, and would certainly cost less than a full-fledged nine-figure initiative effort.
More broadly, the saga of Prop 103 counsels caution in the face of efforts to make laws effectively immutable. California’s 34-year-old “voter revolt” was the cutting edge of insurance regulatory thinking at the time, but hasn’t really changed since, because it can’t. Meanwhile, markets, technologies, and even approaches to regulation within the insurance industry have moved on.
Maybe in this one small way, appealing to the better policy instincts of the Legislature and the courts, Prop 103’s consistently deleterious impact on Californians can be diminished.
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