Auto insurers take hit on judge’s ruling

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Inside Bay Area (California)

Some drivers could start seeing lower auto insurance rates by year’s end now that a judge has denied a request sought by the insurance industry to block new rules requiring premiums be based more on driving records than ZIP code.

Consumer advocates hailed Thursday’s ruling by Sacramento County Superior Court Judge Loren McMasters. The judge rejected an industry request for a preliminary injunction to stop the new rules that are expected to lead to lower rates for many motorists, especially those in urban areas.

“The decision is a very, very powerful statement in support of Commissioner Garamendi’s rules,” said Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights. “The old system is unfair.”

McMasters gave insurers until 9 a.m. Aug. 17 to file new rate plans with the state Department of Insurance.

Insurers expect to file an appeal before then to seek a stay of the ruling, said Jerry Davies, spokesman for the Personal Insurance Federation of California.

“We disagree with the court’s ruling because the regulations will cause a lot of good drivers to receive higher rates and they will be subsidizing other drivers,” he said.

Currently, urban drivers can pay as much as hundreds of dollars more than similar suburban drivers because of where they live, critics say. But it’s difficult to say now how much the savings — if any — will be under the new rules.

The new rules are designed to carry out Proposition 103, the insurance reform initiative passed by voters in 1988. The rules were approved last month by the California Office of Administrative Law after being adopted in June by Garamendi.

Consumer groups have been pushing for the new rules to replace earlier regulations approved in 1996 by then-Insurance Commissioner Chuck Quackenbush.

Critics of the current system said the existing rules are unfair because they rely too much on a motorist’s ZIP code and not enough on Proposition 103‘s three mandatory rate-setting factors: a person’s driving record, number of miles driven annually and years of driving experience.

Insurers will still be able to use a driver’s ZIP code and several other optional factors such as gender and marital status as long as they are given less weight than the three mandatory factors.

The insurance industry contends the existing system is fair and based in part on risk factors such as higher accident and theft rates in cities. The industry filed the suit seeking to block the new rules, saying they would lead to higher insurance rates for drivers in suburban and rural counties.

But those arguments didn’t sway the judge.

In court papers, McMasters noted that a voluntary rating plan submitted last month by the Auto Club of Southern California resulted in reduced premiums for 88 percent of policyholders and an overall 7 percent drop in rates. No more than 1.7 percent of Auto Club policyholders would experience a rate increase exceeding 5 percent, the judge noted.

Since the new regulations were adopted, USAA also has volunteered to base its rates primarily on a motorist’s driving records instead of residence.

Those new rates are expected to take effect on Nov. 1., said USAA spokesman Roger Wildermuth.

“These new regulations are the law of the land and we are going to comply with them,” he said.

The Personal Insurance Federation contends that USAA and Auto Club of Southern California are not typical insurers because they can refuse to write insurance policies in certain situations, which the federation claims gives them an unfair advantage over other insurers.

Consumer Watchdog
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