Insurers finally adopt Prop. 103: auto policy rates no longer based on driver's zip code.

After nine years of court challenges and regulatory delays, Proposition 103 is finally hitting the road.

Last week, more than 200 insurers filed new pricing guidelines on automobile policies with the state Department of Insurance. The new rates will be based primarily on a motorist's driving record, instead of being linked to a particular place of residence.

Compliance by all insurers doing business in the state marks one of the closing chapters of the landmark passage of the controversial 1988 initiative.

"Policyholders revolted, but it was a very long revolution," said Harvey Rosenfield, a consumer advocate who authored Proposition 103. "At least it is finally over ... and, in a sense, all the hurdles that we had to clear have been jumped."

The ballot initiative passed by a narrow 51.1 percent majority vote. Among other things, it called for an immediate 20 percent rollback in premiums, as well as an end to the practice of determining a driver's insurance rate based on the zip code of his or her residence.

But what was once considered a quick way to slash rates quickly became bogged down in red tape.

The day after Rosenfield and other supporters declared victory, the insurance industry sued to block the measure. The litigation progressed all the way to the U.S. Supreme Court, which rejected the challenge.

Since then, various components of the law have been enforced by the Department of Insurance. while others were the subject of continuing litigation. Many of the state's insurers complied with the proposition's primary mandate, an immediate 20 percent rollback in premiums, while others mounted a legal challenge to negotiate smaller rebates.

"This whole process has been hard because it calls for such big changes in the way we rate," said Diane Tasaka, a spokeswoman for Los Angeles-based Farmers Insurance Group, which has more than 2 million auto policyholders in California.

"All of our ratings are based on factors that show the relationship to risk and loss, and now that's been turned upside down," she said. The insurance industry also has been frustrated by frequently updated temporary guidelines the state has been executing since 1989. Adding to the confusion, she said, is that three different insurance commissioners have been in power during the rate overhaul.

Last year, permanent regulations were approved by state legislators that demanded insurance companies come up with a new rate structure no later than Feb. 18. The new plan will be reviewed by state Insurance Commissioner Chuck Quackenbush next month, and be instituted by Dec. 1.

Under the rate structure filed last week, auto insurance prices must be determined primarily by driving record, annual miles driven, and years of driving experience. The changes are expected to cut rates for good drivers living in urban areas, while raising the cost of coverage for motorists with poor driving records and those living in suburban areas.

Many in the industry say the new rules are too complex and restrict them from basing policy rates on the risk of an accident - which is often higher or lower depending on where a policy-holder lives. Prop. 103 supporters say that establishing rates based on residence location unfairly saddles drivers in the inner city with high rates, even though they may have excellent driving records.

Industry representatives generally contend that traditional standards are the most accurate way of identifying risk.

"This is going to turn the insurance industry on its ear," said Candysse Miller, a regional director for the Western Insurance Information Service, a non-profit consumer education group created by the insurance industry.

"Insurers aren't real crazy about this because ... it downplays location, which used to play a much larger factor in determining rates," she said. "In urban areas, you'd pay more because there are more accidents. And accidents lead to lawsuits, which cost money for the industry."

In addition, a change in rates might trigger consumers in crowded markets to drop their current policies and shop around for better rates, one analyst said.

"It's premature to say what the end result will be," said Ric Hill, a vice president with 20th Century Insurance of Woodland Hills, which has about 1 million clients in the state and was a party to the litigation.

Hill said any problems the insurance industry has with the new guidelines will be aired out during public hearings sponsored by Quackenbush. But some consumer groups believe insurers might try to overturn parts of the law in the Legislature later this year.

Bill Ahearn, head of Consumers Union's West Coast division, said his group stands ready to stand up to insurance companies.

"Voters approved this nine years ago, and now motorists will finally get what they want - lower and fairer rates," he said. "But we'll be here if the insurance companies need a nudge."