California Department of Insurance to Investigate Legality of Affinity Group Discounts

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By Timothy Darragh, BESTWIRE

September 25, 2019

Saying discounts offered to affinity groups in California exacerbate disparities in auto insurance rates that lead to higher costs for lower-income families and communities of color, the California insurance commissioner is looking into their legality.

Certain affinity groups, including those in white-collar occupations and highly skilled jobs, receive premium reductions of 1.5% to 25.9%, a Department of Insurance study showed. It said about 25% of Californians receive affinity group discounts.

Insurance Commissioner Ricardo Lara called the differences in rates “disturbing,” saying the “data confirms what we have heard for years, that auto group discounts do not apply equally across California,” Lara said. “We are evaluating whether insurer affinity group discounts violate state laws.”

The study, which was taken from records voluntarily provided by auto insurers of 16 million insured vehicles, showed the benefits of affinity group discounts primarily benefited residents in ZIP codes with higher incomes, while showing the least benefits to those in ZIP codes with lower incomes.

The benefits also tilted toward ZIP codes where non-Hispanic white people predominate. According to the survey, 47% of persons living in ZIP codes with a large non-Hispanic white populations received an affinity group discount, while 29% of those in heavily minority areas receive them.

Additionally, the data showed that discounts more often went to groups with higher educational attainment.

Mark Sektnan, vice president of the American Property Casualty Insurance Association, said the answer should be to expand affinity groups so more people might benefit.

“At last week’s public hearing, the department heard from a teachers’ union and numerous community groups, small businesses and leading social justice groups who stressed how important these affinity programs are to their members,” he said in a statement. “They asked the department not to restrict or inhibit affinity group auto insurance plans because that action will take away discounts that many hard-working Californians depend on. The groups stressed that any changes made should seek to expand affinity programs, so more Californians can share in this opportunity.”

He noted that the groups are not creations of the insurance industry, which is prohibited from creating them.

The study stemmed from a report and hearings supported by Consumer Watchdog and other consumer groups which argued the state’s Proposition 103 does not allow insurers to offer discounts to drivers not based on their driving records.

Eleven groups led by Consumer Watchdog in February filed a petition to ban the practice, claiming that offering better rates to individuals based on groups to which they belong including professional organizations, college alumni groups and job classifications unfairly left the poor, under-educated and minority groups essentially subsidizing the rates of the wealthy (Best’s News Service, Feb. 25, 2019).

In January, the department prohibited insurers from using gender as a factor in setting auto rates (Best’s News Service, Jan. 7, 2019).

The top five writers of all private passenger auto insurance in California in 2018 were: State Farm Group, with 13.74% market share; Farmers Insurance Group, with 10.68%; Berkshire Hathaway Insurance Group, with 9.7%; Allstate Insurance Group, with 8.99%; and Auto Club Enterprises Insurance Group, with 8.69%, according to BestLink.

(By Timothy Darragh, associate editor, BestWeek: [email protected])

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