Consumer Advocates Warn Against Auto Insurance Proposals

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SACRAMENTO, CA — The cost of purchasing auto insurance in California — strictly regulated since 1989 — is poised to increase, consumer advocates are warning this week, under two proposals working their way through legislative and regulatory bodies.

A proposed law by Assemblyman Joe Coto, D-San Jose, which passed a committee hearing Wednesday, would make it easier for insurance agents to act as brokers, advocates say, which would allow agents to collect both a commission and a broker’s fee paid by the consumer.

In another development, Insurance Commissioner Steve Poizner announced emergency regulations Tuesday to streamline how rates are set, but the proposed rules are being likened to a "giveaway" for the insurance industry because they allow insurers to set rates beyond what is permissible under Proposition 103, the state’s landmark ballot initiative that has saved drivers billions of dollars.

Industry officials said the measures intend to save money for drivers — and that assuming that premiums or costs of buying insurance will rise is unwarranted.

But they drew an angry response from Consumer Watchdog, the statewide advocacy organization that strives to show how the insurance industry’s political connections influence policy and regulation of the industry in insurers’ favor.

"There’s never been a battle in California like this one," said Harvey Rosenfield, the organization’s founder. "Twenty years between one industry and the voters, with the political establishment largely on the side of the industry, and the voters so far successfully managing to save $62 billion."

The legislation Coto is carrying on behalf of the industry, AB 2956, would clarify the law that distinguishes when a person selling insurance is acting as an agent or a broker. Under current law, brokers, who charge a fee to customers, and agents, who work for insurance companies and typically receive commissions, hold an identical license.

The problem with the current law, brokers say, is that it’s ambiguous — agents who perform the acts of brokers risk being labeled, after the fact, specifically as agents, which means they could then be subjected to legal and regulatory sanctions because of court cases and regulations by the California Department of Insurance, according to Insurance Brokers & Agents of the West, a major trade association.

What matters is not what someone calls themselves, but what they say or do, said John Norwood, an IBA West lobbyist. The bill, he told the Assembly Insurance Committee, "would maintain the status quo, which has served the interests of this community for well over 50 years."

But at least three consumer groups and the Department of Insurance oppose the bill, saying the measure would increase the cost of auto insurance by overturning a court ruling "that protects customers from paying deceptive and illegal broker fees to people who in fact are agent representatives of insurance companies," according to a letter Consumer Watchdog sent to Coto, who chairs the committee.

"This bill warps competition in the marketplace," said Norman Goldman, an attorney who files class-action lawsuits on behalf of the insured.

Coto, the committee chairman, was not present when his bill was discussed, because he was presenting a measure in another committee. But the Assembly panel’s chief consultant, speaking on behalf of Coto after the hearing, refuted the statements about insurance costs rising.

"It’s a complete ‘sky is falling’ to say it inevitably will happen because it’s contrary to what everybody knows that people know," said Mark Rakich, explaining that insurance companies aggressively advertise their services.

"It’s theoretically possible" that costs could rise, he said, but it assumes that consumers won’t shop around for the best rates.

The second measure this week, proposed by the Department of Insurance, updates regulations that were changed in 2007 under previous Commissioner John Garamendi, and were later found to be confusing and overly vague by Poizner’s

Rosenfield told Poizner in a letter that the new regulations "are an outrageous giveaway to the insurance industry" because they allow companies to increase rates.

But Poizner said he streamlined the rules so that companies seeking permission to adjust their rates will be able to go through a more accurate rate-setting process — which is in fact projected to lower rates, said Darrel Ng, a spokesman for Poizner.
Contact Edwin Garcia at [email protected] or (916) 441-4651.

Consumer Watchdog
Consumer Watchdog
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