Bill Would Violate Proposition 103, Maintain High Rates for Good Drivers and Surcharges on Widows

Sacramento, CA — An insurance industry proposal to block Insurance Commissioner Garamendi’s rules implementing the Proposition 103 mandate that premiums be based more on a person’s driving record than where they live, or factors such as marital status, passed out of the Assembly Insurance Committee today. The bill received key support from committee chair Juan Vargas (D-San Diego), who received over $300,000 in campaign contributions from the insurance industry. It would protect Quackenbush-era rules allowing insurance companies to overcharge good drivers throughout California.

The bill is an illegal amendment to voter-approved Proposition 103, and will eventually be struck down by the courts, according to the Foundation for Taxpayer and Consumer Rights (FTCR). Its chief purpose is to delay Commissioner Garamendi’s proposed rules to enforce Prop. 103’s good driver protections.

“The walls of the state capitol are papered with insurance industry contributions, which is why politicians are willing to let insurance companies continue to overcharge good drivers for their auto insurance,” said consumer advocate Douglas Heller, FTCR’s executive director. “Voters enacted Prop. 103 in 1988 because politicians wouldn’t solve high insurance rates, and after 17 years, politicians and the insurance industry are still roadblocks to reform.”

Joining Vargas in support of the industry’s bill, AB 2840, were: John Benoit (R-Palm Desert), Russ Bogh (R-Beaumont), Betty Karnette (D-Long Beach), Dennis Mountjoy (R-Monrovia) and Pedro Nava (D-Santa Barbara). A seventh late vote was not identified. The bill requires a 2/3 vote for enactment.

AB 2840 Would Hurt Good Drivers and Motorists With Low Annual Mileage Statewide

AB 2840 seeks to delay rules that will end a decades-old insurance industry practice that forces good drivers and low-mileage drivers to pay inflated insurance premiums because of factors such as where they live and their marital status. Under the current system, good drivers living in certain ZIP Codes throughout the state pay hundreds of dollars more for basic liability insurance than drivers in neighboring communities based solely on their address, even if they have a perfect record.

Under new rules proposed by Commissioner Garamendi, drivers will first be judged by their driving safety record, the number of miles driven, and their years of experience on the road. Under the rules, insurers will still be allowed to consider where a person lives, but the companies will not be able to give ZIP Code the most impact in determining a customer’s premium. Under current rules, put in place by disgraced former Commissioner Chuck Quackenbush, insurers have been allowed to charge perfect drivers hundreds of dollars extra each year because of where they live and, as FTCR revealed today, their marital status.

The Widow Surcharge

FTCR reported today that a 49-year-old Sacramento resident with a perfect driving record pays $356 more per year for auto insurance if his spouse has died than if she were alive, based on an online quote obtained from Geico.com. Throughout California, Geico charges widows and widowers approximately 25-28% more for auto insurance than married drivers. While Garamendi’s proposed rules would lessen the impact of such things as marital status, the proposed bill would preserve the status quo until after a study is conducted by the State Library.

“Why an insurer would punish a good driver because he or she has lost a spouse is incomprehensible and highlights the need for the rationalization of insurance premium setting proposed by Insurance Commissioner Garamendi,” said Heller. “Those politicians who are proposing to prolong huge surcharges on widows are siding with their insurance company donors and Chuck Quackenbush and lining up against California voters and good drivers throughout the state.”

Proposal Would Violate Voter Approved Proposition 103

AB 2840 would place illegal restrictions on the Insurance Commissioner‘s ability to carry out Proposition 103‘s clear requirement that auto premiums are based primarily on drivers’ records rather than other factors such as their ZIP Code, marital status, and gender. Voters specifically directed the Commissioner to carry out the rules of Prop 103 and denied the Legislature the ability to tinker with the law, except to further the purposes of the initiative.

Last year, the Courts overturned a 2003 legislative amendment to Proposition 103 (SB 841-Perata) on the grounds that it did not “further the purposes” of the initiative, specifically ruling that the Legislature cannot amend the same provision of Prop. 103 now under attack by AB 2840. Since the enactment of Proposition 103, three laws passed by the Legislature have been overturned by the Courts as illegal amendments to the initiative.

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