Weakened Regulations, Disregard for Process Leave AAA Insurance Customers Paying Too Much
Santa Monica, CA — California Insurance Commissioner Steve Poizner’s decision to limit the size of Auto Club of Southern California’s insurance rate cut will cost AAA policyholders an average of $240 each this year. The Commissioner announced a 5.4% rate cut for the state’s 2nd largest auto insurer today without the agreement of Consumer Watchdog, which requested a hearing on Auto Club’s rate application. The group said that, by its review of the company’s data, the Commissioner should have required a much more substantial rate cut (at least 13%) and that the Department of Insurance had not properly involved consumer intervenors in the process and may have not followed its own regulations.
A key to the Department’s justification of the smaller-than-appropriate rate cut is the rule changes to Proposition 103 rate regulations that Commissioner Poizner enacted on an emergency basis last spring. Under stronger rules established by former Commissioner John Garamendi, insurance companies were required to look back at three years of data to determine important rate-setting trends related to the cost of claims. Under the deregulatory changes made by Commissioner Poizner, companies can choose how far back they look to set the trends. Auto Club was allowed to use only a year and a half of data, which overstated so-called “loss trends.” That change alone allowed Auto Club to charge consumers approximately $60 million more than would have been allowed if Commissioner Poizner had not deregulated elements of the state’s insurance reform laws.
A combination of other exceptions to the rules (known as variances) and the fact that the Department never held a promised meeting with all parties, including Consumer Watchdog, to work out the competing analyses, led the overall rate change to be $140 million too rich for Auto Club.
“When insurance companies are allowed to pick and choose, consumers lose,” said Consumer Watchdog’s Executive Director Douglas Heller. “After everything we’ve seen in the nation’s financial markets, it should be no surprise that a deregulatory, hands off approach will leave the public worse off than it ought to be. Auto Club really should be cutting policyholder premiums by about $240 each, but instead Californians are getting less than half of what they deserve and Auto Club pockets the rest.”
Consumer Watchdog is reviewing the decision of the Commissioner and expects to ask the Department to formally reconsider the decision.
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