Commissioner Lara Should Reject Job & Education-Based Insurance Discrimination, Says Consumer Watchdog

The group called on Commissioner Lara to stop approving rate increases with job and education-based premium surcharges, surcharges that a Department of Insurance investigation has found create “wide socioeconomic disparities,” until new rules take effect.

Tomorrow, Tuesday, January 28, the California Department of Insurance will hold a prenotice workshop to discuss proposed regulations addressing these disparities that, if done right, could bar this discriminatory use of occupation and education to set auto insurance premiums.

Read Consumer Watchdog’s letter to the Commissioner.

“Commissioner Lara should stop approving rate increases that he has acknowledged are discriminatory and issue rules to ensure that lower income communities of color no longer pay more to subsidize the rich,” said Carmen Balber, executive director of Consumer Watchdog. “California law prohibits drivers from paying more based on how much they earn and where they went to school, instead of how well they drive.”

A September 2019 Department of Insurance analysis of industry data confirmed that insurance companies are charging higher premiums to drivers who reside in ZIP codes with lower per capita incomes, reflecting job status; have lower levels of educational attainment; and in which communities of color predominate.

However, despite the Department’s findings that insurance companies use occupation and education to overcharge communities of color and blue-collar California drivers, the Department of Insurance appears poised to approve Mercury Insurance Company’s pending rate application including those surcharges. Mercury seeks to increase the surcharge on drivers not employed in one of the company’s preferred occupations. Currently, drivers in Mercury’s “Basic Program” who are not employed in one of Mercury’s preferred professional occupation groups pay 12% more than engineers—one of the preferred occupations. In Mercury’s proposed rate increase, drivers in the “Basic Program” will now pay 16% more than engineers. Under the current rates teachers are surcharged less than half a percentage point more than engineers. If the increase is approved by Commissioner Lara, that disparity will increase and teachers will pay 7.77% more than engineers.

“Despite assurances the Department would address these unjustified and unlawful surcharges, the harm to communities of color and blue-collar California drivers is growing, forcing people who do not qualify for special treatment to subsidize the premiums of those in elite professions like doctors, engineers, and CPAs,” said Harvey Rosenfield, founder of Consumer Watchdog and author of insurance reform Proposition 103. “New rules must end these surcharges on lower-income and less-educated drivers that drive up the cost of insurance for people who can least afford it.”

Consumer Watchdog and ten other civil rights and public interest organizations petitioned the Commissioner to end job and education-based surcharges in February 2019. Read the petition.

The organizations petitioned Commissioner Lara to simply ban the use of education and occupation as rating factors. The Commissioner rejected that petition and instead begun a process that has resulted in the draft regulation to be discussed on Tuesday. Consumer Watchdog will testify that the proposed regulation as drafted does not yet ensure that insurers’ discriminatory use of education and occupation ends, or that insurance companies are required to comply with the plain text and intent of California voters when they passed Proposition 103.

Voter-approved Proposition 103 requires premiums be based primarily on three mandatory factors – driving safety record, annual mileage, and years driving experience – and prohibits unfairly discriminatory rates. Insurance companies must obtain agency approval for their rates and premiums. The Commissioner can adopt other optional rating factors by regulation that have less impact on premiums than the three mandatory factors, but occupation and education have never been adopted as rating factors.

The workshop is scheduled for Tuesday, January 28 at 10:00 am at the Department of Insurance in downtown Los Angeles: 300 South Spring Street, 1st Floor – Hearing Room (North Tower).

In December, over Consumer Watchdog’s objections, the Department approved another rate application with job and education-based surcharges. Farmers Insurance’s rate application included a three-tiered rating system under which doctors, engineers, accountants, and scientists are offered the special privilege of the lowest rate. Police officers, firefighters, and nurses – pay up to 7.19% more. All others, like janitors, factory workers, and waiters who do not have one of these preferred occupations pay up to 13.81% more. Overall, more than 60% of Farmers’ auto insurance business is subjected to higher base rates based solely on the rated driver’s occupation.