AB 1488 Would Punish Accident Victims for Filing Legitimate Claims
A legislative proposal sponsored by Mercury Insurance — AB 1488 (Chavez — La Puente) — which would create the perverse incentive to not file a legitimate insurance claim, is scheduled for a floor vote Thursday April 19, 2001. Dubbed the “No Claims” insurance policy by consumer advocates, AB 1488 would change insurance law to allow companies to offer a discount to consumers who do not file claims.
“People pay premiums with the understanding that their insurance provides coverage,” said Doug Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights (FTCR). “It is entirely unfair to penalize innocent accident victims when they file a legitimate claim. Should a magazine subscription cost less if you promise not to read the articles?”
The proposal states — ironically, in the very same section of the Insurance Code (491) that prohibits rate penalties against drivers who are not at-fault in an accident — that insurers “may offer a discount to policyholders who are claim free.” This proposal contradicts the purpose of insurance and offends the millions of California consumers who regularly pay insurance premiums to ensure that they are covered if they are in an accident.
State law, as mandated by Proposition 103, already allows an auto insurer to increase a motorists’ premium if that policyholder’s driving record worsens, as indicated by an at-fault accident. AB 1488, however, means that an insured driver who is, for example, rear-ended while stopped at a light will face a premium hike if they file a claim. It will particularly harm low- and moderate-income drivers who, already stretched thin by their current premium, may choose not to get proper medical attention or fix their car for fear that their insurance will be come unaffordable if they file a claim, according to FTCR.
“The Mercury proposal will make motorists fearful of filing a claim, because they cannot afford the rate increase. But this begs the question: why would anyone purchase insurance if they were not going to be able to file a claim in the event of an accident?” said Heller. “Mercury Insurance wants to reap all the benefits of selling insurance, while bearing no responsibility for the product and its promises.”
According to FTCR, AB 1488 amends Proposition 103 and does not further its purposes, rendering the proposed law illegal. It violates the voter-approved, 1988 initiative by mandating new rating factors — the data used by insurers to set insurance rates — in statute. Insurance Code Ã‚Â§1861.02(a)(4) places the responsibility of determining rating factors in the hands of the Insurance Commissioner. Furthermore, Prop. 103 requires that those rating factors “have a substantial relationship to the risk of loss.” Being claim free does not have such a relationship. In its letter of support for the bill, Mercury acknowledges that it is proposed to address claims filed by policyholders who are “100 percent not at fault, and Mercury collects from other parties its entire loss payment,” because processing these claims costs the company. “Perhaps, they’ll give us a discount if we never call them, either,” said Heller.