Industry Proposal Violates Prop 103, Seeks to Delay Garamendi Rules To Lower Rates for Good Drivers

Santa Monica, CA — Five lawmakers who have received more than $300,000 from the insurance industry introduced a bill today that seeks to delay implementation of long-awaited auto insurance pricing reforms that were announced by Insurance Commissioner Garamendi last December. AB 2840 (Benoit), crafted by the Personal Insurance Federation of California, would prohibit Garamendi’s enactment of rules to enforce voter-approved Proposition 103, which requires insurers to base auto premiums primarily on a motorist’s driving record, until after the completion of a duplicative and needless taxpayer-funded study of the rules.

The 1988 voter-approved initiative Proposition 103 mandated that insurers prioritize individual’s driving record over other factors such as ZIP-Code and marital status, but a loophole enacted by disgraced former Commissioner Quackenbush allowed insurers to maintain the ZIP Code-based system of price discrimination. In 2003, Commissioner Garamendi agreed to review the auto insurance pricing system and held numerous public hearings to investigate changes to the Quackenbush rules. After more than two years of public hearings and regulatory analysis of the law, Garamendi announced the reforms. Insurers responded with a series of maneuvers seeking to maintain the status quo, including the filing of a ballot measure, an aggressive PR campaign, and now AB 2840, which would be deemed illegal, according to consumer advocates.

“The insurance industry’s lawyers know they will lose the legal battle if AB 2840 passes, but they don’t care because their main objective is to delay implementation until Garamendi has left the Department of Insurance at the end of the year,” said Douglas Heller, Executive Director of the non-profit, non-partisan Foundation for Taxpayer and Consumer Rights. “Over the last two decades, the insurance industry has used every type of scare tactic to stall insurance reform. Now, insurers have put $300,000 into the pockets of these five politicians who have introduced the latest scheme to block reform and maintain high rates for good drivers.”

An analysis of campaign filings with the Secretary of State show over $300,000 from the insurance industry to the politicians who introduced the bill today:

Insurance Industry Contributions:
Asm. Joe Canciamilla (Pittsburg): $95,450
Asm. Lois Wolk (Davis): $75,303
Asm. John Benoit (Palm Desert): $69,550
Asm. Nicole Parra (Hanford): $36,450
Asm Doug LaMalfa (Richvale): $35,475

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.

Delaying implementation of this clear provision of the law would not further the voters’ objectives and would be thrown out by the Courts, according to FTCR. 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 that is now being attacked 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.

The Irony of Canciamilla’s Involvement

FTCR considers the proposed study and the bill itself a fraudulent waste of taxpayer resources, both because it will be deemed a violation of Prop 103 and because it comes on the heels of a multi-year study of the issue by the Department of Insurance, in which Assemblymembers Wolk, LaMalfa and Parra were each actively involved. FTCR noted the irony that one of the politicians leading this effort is Assemblyman Joe Canciamilla, who has called for a citizen-based reform of state government in recent months.

“Joe Canciamilla has been singing a populist tune, but as soon as his paymasters in the insurance industry need something, he is willing to spurn the citizenry by trying to delay and bury voter-approved insurance reforms,” said Heller. “In 1988, voters went around politicians to reform the insurance system because Sacramento was in the grip of insurance companies. Once again citizens are stuck with politicians in the pockets of insurance companies who are willing to waste taxpayer money to help their big donors.”

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 the current system, some insurers prioritize marital status over driving record, so a widowed motorist with a perfect record will pay 28% more than if his wife were alive.

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.

“Insurance companies have punished good drivers in every corner of the state because the insurers discriminate against people in certain ZIP Codes, even when they have perfect records,” said Douglas Heller, Executive Director of The Foundation for Taxpayer and Consumer Rights. “Commissioner Garamendi’s rules implement the common sense approach that your insurance premium should be based mostly on whether or not you are a safe driver. The insurance companies want to keep a system that voters rejected more than 17 years ago.”

Contact Douglas Heller for more detailed information on the discrimination of the current, industry preferred system, and the effects on consumers of Garamendi’s proposed rules.

– 30 –