Second insurer OKs new rule on auto rates

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The Sacramento Bee

A second major California auto insurer is breaking from the industry pack and plans to base premiums on drivers’ safety records instead of where they live.

In a plan to be announced today by Insurance Commissioner John Garamendi, the United Services Automobile Association will agree voluntarily to follow newly enacted rate-setting rules being challenged in court. Last month, the Automobile Club of Southern California agreed to follow the rules and announced reductions averaging 7 percent, or $134 a year.

USAA is proposing an 8 percent cut for more than 318,000 policyholders, meaning roughly 75 percent of its customers in the state will enjoy an average savings of $103 a year.

“The new regulations are the law of the land, and we’re going to comply with them,” said Roger Wildermuth, a spokesman for USAA, which provides coverage to military members and their families nationwide.

Insurance industry officials said they aren’t surprised by the move, citing USAA‘s selective military membership and narrower coverage in the state.

USAA‘s announcement will come on the eve of a series of hearings scheduled in Sacramento County Superior Court on Thursday over two lawsuits aimed at blocking Garamendi’s recently enacted regulations. USAA is not a party in the lawsuits.

The new standards require insurers to comply with provisions under a 1988 voter-approved initiative, Proposition 103, and set premiums primarily on a policyholder’s safety record, miles driven and driving experience. The rules would end the industry’s practice of using ZIP codes as a main ingredient for setting rates.

“These two companies that have come forward put a lie in the industry’s point that it can’t be done,” Garamendi said during a telephone briefing Tuesday. He said “several” other carriers are considering similar moves, but declined to cite specific companies.

Critics, though, remained steadfast Tuesday and are pressing forward with lawsuits filed by the Farm Bureau and the Personal Insurance Federation of California, Association of California Insurance Companies and American Insurance Association.

The lawsuits argue Garamendi overstepped his authority by revamping the rate-making process. Opponents also cite an industry study that predicts rates would rise in 52 of the state’s 58 counties.

“We remain extremely concerned about how the rules are going to affect rural residents,” said Dave Kranz, a Farm Bureau spokesman.

Sam Sorich, president of the Association of California Insurance Companies, said he expected some insurers to accept the new standards.

Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights in Santa Monica, called the insurance industry’s claims groundless.

“It’s not all doom and gloom. These two companies are showing that you can sell insurance at good rates to good drivers and follow the law without the sky falling,” he said.
About the writer: The Bee’s Gilbert Chan can be reached at (916) 321-1045 or [email protected]

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