State Agency Approves Regulations Making it Easier for Auto Insurers to Cancel Policies

The Office of Administrative Law has approved new regulations that will make it easier for automobile insurers to cancel or not renew policies for even minor traffic violations, the Proposition 103 Enforcement Project, a consumer advocacy group, warned today. These regulations were proposed by State Insurance Commissioner Chuck Quackenbush who has tried to downplay the impact of the new regulations, saying the real targets of the regulations are drunk drivers. However, the Project warns that the majority of motorists affected will be sober drivers with a fender-bender and a minor ticket or two.

“These regulations could mean that one minor mishap will result in your insurance company dropping your coverage,” said Lillian Salinger, Staff Attorney for the Project.

These new regulations will change the way insurance companies can count the violation points on your driving record. Here is what can happen:

• Under the regulations, an insurance company can decide not to renew a driver’s policy if that driver received 3 or more violation points in three years. For example, in December of 1995, a driver gets into a fender-bender that resulted in his insurance company paying out a claim for a minor injury. (The driver now has two points on his record.) Three years later, a citation for failure to use a turn signal gets the driver another point. The driver’s insurance company can now decide to not renew his policy.
  
  
• A driver had a minor accident in January 1996, which caused some property damage. No one was hurt, but a police officer saw it occur and cited the driver for an illegal turn. In December 1998, the driver executes a “California stop” at a stop sign but is caught by a police officer hiding around the corner. The driver’s insurance company can now cancel him.
  
  
• The regulations lump all of the alcohol related offenses together and make a violation of any one of these offenses a basis to cancel or not renew a driver’s policy. In other words, a DUI conviction will be treated the same as a violation by a sober driver transporting a passenger with an open container of alcohol. Under existing law, a driver can already be dropped by his or her insurance company for a DUI, but these regulations will allow insurance companies to cancel or not renew a totally sober driver for having a re-corked bottle of wine in a cooler in the back seat of the car.

These regulations could result in widespread cancellations or nonrenewals by insurance companies. Drivers who have been cancelled or not renewed by their insurance companies will have to pay for higher priced replacement coverage. An insurance company can decide to cancel a driver’s coverage under one policy and turn around and offer that driver a new policy at a much higher cost.

“In order to keep the insurance industry happy, Commissioner Quackenbush approved regulations that will inevitably make insurers more money,” said Salinger. “Unfortunately, the average driver will suffer because once a driver has been dropped by an insurance company, it will be very difficult to find affordable replacement coverage,” said Salinger.

Although Department of Insurance officials dispute these warnings and claim the regulations only go after drunk drivers, industry observers agree with the Project. For example, the insurance trade publication, Insurance Week, wrote last week:

“[The Project] dreamed up several hypothetical examples of how an auto policyholder could be nonrenewed because of two extremely minor, non-drinking-related offenses. The critics say the regs would grant insurers too much discretion and could lead to widespread renewals. And you know what? The critics are right…If the OAL approves these regulations, insurers will have the opportunity to push a large number of what used to be Prop. 103-defined ‘good-drivers’ into the incredibility profitable, but basically tapped out nonstandard auto market.”

“Press release after press release from the Department of Insurance we see the same thing: drunk drivers are the supposed target of these regulations,” said Salinger. “If so, then Quackenbush should immediately promulgate amended regulations so that they’d affect only drunk drivers. But, he won’t because the Commissioner and the insurance industry both know that the real gold mine in higher auto insurance rates come from the hundreds of thousands of sober drivers that will be affected by these regulations.”

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