SACRAMENTO, CA — California auto insurance companies would be required to change how they calculate rates, focusing less on where motorists live and more on how well they drive, under a proposal announced Thursday by Insurance Commissioner John
The regulations would require auto insurers to focus on three factors – a motorist’s driving record, years of driving experience and miles driven, Garamendi said.
Proposition 103, passed by voters in 1988, was supposed to minimize the geographic differences in auto insurance rates by requiring companies to focus on those factors. But insurers were still allowed to consider 16 optional factors – such as ZIP code, marital status and school grades.
The proposed rules, which will be introduced next week, “will finally, after 17 years, bring to drivers in California the fairness that was promised in Proposition 103,” Garamendi said.
He stressed that the proposal doesn’t change any of the optional factors companies can consider, such as whether drivers have multiple policies with the company or have taken driving courses.
“We’re simply saying that their importance cannot be more important than the mandatory factors,” he said. “A good driver, wherever they are in California, ought to have a better rate than a bad driver,”
But insurance companies say the 16 optional factors are weighed so they provide a more complete picture of each customer’s risk.
“Those factors are weighed appropriately because they’re a good predictor of loss,” said Sam Sorich, president of the Association of California Insurance Companies.
For instance, a driver on a rural highway with little traffic is less likely to be in an accident than someone commuting on a busy freeway, said David Snyder, vice president of the American Insurance Association.
“The existing insurance rates capture all relevant risks,” Snyder said. “After the proposed changes, the rates will be less accurate.”
Garamendi said the insurance premiums are more capricious than the industry suggests because of the emphasis companies place on the optional factors. One company, he said, will increase drivers’ rates if they get divorced.
“What’s going on there? Is that more important than if you’re a good driver?” he said.
Sorich said Garamendi’s proposal also fails to consider the rest of Proposition 103, which says that rates must be fair and actuarially sound.
“It is difficult to balance those two somewhat competing goals,” Sorich said. “But on balance, these (current) regulations seem to achieve that.”
Insurance companies warned that some drivers – particularly seniors and new drivers – could see their rates increase.
That could harm people who live on fixed incomes, said John Kehoe, with the California Senior Advocates League.
“It only makes sense that drivers who drive on more congested, accident-prone
roads or drivers who live in neighborhoods with more auto theft claims are more likely to have an insurance claim,” he said.
Garamendi said it was too soon to estimate the effect on rates and promised that he wouldn’t allow companies to use the new rules to arbitrarily increase rates.
His proposed changes are administrative and do not require approval from the legislature. Garamendi will take public comment and said he hopes to have the new rules take effect by the end of 2006.
Consumer advocates called the announcement a victory for California motorists.
The rules would let rates be based “on factors that are within our control, like driving records and mileage driven,” said Harvey Rosenfield, executive director of the Santa Monica-based Foundation for Taxpayer and Consumers Rights.
The foundation was a driving force behind the voter approval of Proposition 103. The initiative gave the Department of Insurance the authority to regulate auto insurance rates in California and led to $1.2 billion in rebates to California motorists during the early 1990s.