New insurance rules spur debate

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The Bakersfield Californian

Troy Wells owns a Dodge pickup but often leaves it in the driveway and rides a motorcycle to save gas.

Can you make sense of anything they say?

That’s the dilemma facing Kern County motorists trying to figure out how the new auto insurance rating factors proposed by Insurance Commissioner John Garamendi will affect their bank accounts.

Garamendi may be on the verge of implementing the new rules, which require insurers to give more weight to mileage and driving records than ZIP codes in determining premium rates.

Most insurance companies say they charge higher rates to urban residents because that’s where the most accidents are. They claim the new regulations will force them to increase rates for high-mileage drivers in rural areas such as Kern County so those in big cities can be reduced. They and the California Farm Bureau Federation have sued Garamendi in a last-ditch effort to block the changes.

Garamendi and consumer groups, however, say the industry is twisting facts to protect an arbitrary rating system that is unfair to good drivers. And they point to the Auto Club of Southern California, which already implemented the rules, as evidence that the industry’s concerns are invalid. The club says the proposed new rules are not only livable, but may actually lower premiums for the vast majority of its customers, even those in Kern County.

There’s no way at this point to tell for sure who’s right. Most insurance companies don’t have to propose specific rates for approval under the new rules until mid-August at the earliest, assuming they lose in court. And car owners probably won’t begin to see them in their bills until sometime next year, officials say.

Local insurance agents say few of their customers know about the impending changes, but those who do are worried.

Take, for example, Troy Wells, a married Bakersfield schoolteacher with two children who owns a Dodge pickup but often leaves it in the driveway and rides a motorcycle to save gas.

“It makes me cringe a little bit,” said Wells, a client of State Farm agent Janet Hopkins. “I think insurance rates should be based on risk, and there’s a higher risk in more-populated areas. One reason I live in an area like Kern County is the lower cost of living.”

The rating battle has been one of the most contentious regulatory issues in California for the past three years.

Supporters and opponents of the new rules accuse each other of flat-out lying about the impact on consumers. Critics accuse the Democratic insurance commissioner of trying to reduce rates for Democratic big-city voters at the expense of Republican rural counties to boost his campaign for lieutenant governor against the GOP’s Tom McClintock.

California voters lit the fuse on the issue way back in 1988. That’s when they approved Proposition 103, regarded as a historic populist revolt against rising insurance rates that previously were largely unregulated.

It was so long ago that many — perhaps most — of today’s motorists aren’t aware of it.

“I don’t remember that,” said the 39-year-old Wells. “I was in college at the time and I was probably on my parents’ insurance.”

Among those who remember it, Proposition 103 is best known for declaring that insurance companies had been gouging their California customers. It forced them to refund about $1.2 billion to policy holders.

But the ballot initiative also decreed that auto insurance rates must be based primarily on the policyholder’s driving safety record, the number of miles driven annually and number of years behind the wheel. In other words, the best drivers with the shortest commutes should get the lowest rates, although other factors such as where the driver lives — ZIP codes — also could be given some weight.

Garamendi was the first state insurance commissioner elected under Proposition 103 — another of its reforms was replacing appointed commissioners. But it fell to his successor, Charles Quackenbush, to write regulations implementing the auto insurance rating provisions in the mid-1990s.

Flash forward to 2002, when Garamendi was elected to the post again, two years after the scandal-plagued Quackenbush was forced to resign.

Garamendi agreed with consumer groups, who had long charged that Quackenbush wrote the rules to satisfy the insurance companies and allowed them to continue doing business largely as they had prior to Proposition 103. He launched a series of studies, hearings and other steps that produced the new rules that are on the verge of implementation unless the courts intervene.

“It’s the law,” Garamendi said when asked why he pushed for the changes. “Good drivers should get the same rates for the same coverage no matter where they live.”

Harvey Rosenfield, the crusading president of the Foundation for Taxpayer and Consumer Rights and the author of Proposition 103, said, “It really is a testament to the greed and arrogance of the insurance industry that they have managed to delay this for 18 years,”

Insurance industry officials, who have been battling Rosenfield and other consumer activists in court and at the ballot box for nearly two decades, said the critics don’t know what they are talking about.

Insurers base their rates on losses they have experienced in the past, said Rex Frazier, president of the Personal Insurance Federation of California. Drivers in urban areas have more accidents and more severe accidents than those in outlying areas, even though rural drivers may put more miles on their odometers, Frazier said.

“Under these regulations, the state will be picking ‘winners’ and ‘losers’ and forcing insurers to charge arbitrary rates,” Frazier said.

He pointed to two studies that concluded that rates in 52 of California’s counties would go up under the Garamendi rules and those in only six would go down, with the biggest decreases in Los Angeles and San Francisco counties.

Kern’s rates would rise by as much as 11 percent, the studies showed.

Nonsense, Garamendi said. He charged that the studies, one of which was done at his department’s request, were deliberately distorted by the way insurance companies provided information for them.

He said current insurance rates are not only unfair to good drivers, but as arbitrary as the insurers claim the new rates would be.

He provided a survey showing that rates charged last year by insurance companies in the 93313 ZIP code south of Bakersfield and west of Highway 99 ranged from $544 a year to $1,694 a year for the same coverage. Rates typically vary widely in most ZIP codes, he said.

That doesn’t prove Garamendi’s point, said Jerry Davies, a spokesman for insurance federation. It merely reflects different loss experiences the different insurers have experienced in each ZIP code.

Frazier and other insurance executives also point to a 2002 court decision that they say upheld the rating factors written by Quackenbush.

Garamendi took a different view of the decision, saying it upheld the commissioner’s authority to set rates.

Kern County lawmakers in both parties unanimously side with the insurance companies and oppose the new rules.

Earlier this year, Assemblywoman Nicole Parra, D-Hanford, co-authored a bill, AB 2840, by Republican assemblyman John Benoit of rural Riverside County that sought to delay the rules until an independent study could be conducted of the impact.

It was quickly buried by Democrats who control the Legislature.

Parra said Garamendi should take heed of the lawsuit and the legislation, despite its failure.

“This sends a clear signal that there is strong opposition to these measures, and I hope Commissioner Garamendi begins to listen to these concerns,” she said.

Benoit charged that the legislation was buried to help Garamendi curry favor with the urban Democratic base in his campaign for higher office.

“The timing of the commissioner’s attempt to make this change was suspicious, if not outright political,” Benoit said. Even with Nicole Parra’s help, we weren’t able to get anywhere. The majority party is still the majority party.”

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