Higher Assigned Risk, Blue Cross Rates Loom : Drivers’ Insurance Hike to Average 18.5%
State Insurance Commissioner Roxani Gillespie on Thursday ordered an average 18.5% increase in auto insurance premiums for the half-million Californians enrolled in the assigned risk plan.
The increase was only about one-third of what the insurance companies had requested in their original filing last February, and Gillespie said she had intentionally held down increases in the Los Angeles area in an attempt to keep auto insurance within an affordable price range.
For the minimum liability coverage required under the state’s mandatory insurance law, the average statewide increase ordered was kept to 11.4%. But much larger increases were approved for uninsured motorist coverage and medical coverage also sold by the assigned risk plans.
Continue to Lose Money
The insurance commissioner, describing in an interview how she had tried to resolve some hard policy choices, said she preferred to allow the assigned risk system in the Los Angeles area to continue to lose some money.
These losses will indirectly have to be picked up in the premiums paid by regularly insured drivers who are not in the assigned risk system. The chairman of the California Automobile Assigned Risk Plan’s governing committee, Robert Vass of the GEICO company, estimated Thursday that the subsidy will total more than $150 million this year.
Two main groups, making up just under 3% of the state’s 18 million licensed drivers, are insured under the assigned-risk program. It is one of the few instances in which the state insurance commissioner has authority to set the rate.
About 60% of the assigned-risk policyholders are substandard drivers who cannot get regular coverage because their driving records are so poor. Others are drivers with good records who live in minority urban areas, where many insurers have traditionally been reluctant to sell policies.
Drivers in the assigned-risk program are assigned to the state’s private auto insurance companies in proportion to the companies’ share of the total business. Any losses in assigned risk are borne by each company’s other customers.
50% Increase Sought
Last February, when the governing board of the assigned risk plan, including many insurance company executives, asked for a 50% increase, it argued that even this much would not make the system fully self-sustaining--that claims and other loss costs would exceed the premiums received.
But, Gillespie said Thursday, such huge increases as asked for threatened to lead even more drivers to ignore the state’s mandatory insurance law, just at a time when the state Supreme Court has upheld the law and a major enforcement effort is getting under way.
So, she said, she decided to hold down the increases, the first approved by her department since a 10.7% average increase became effective Feb. 1.
For instance, Gillespie said, the size of claims or loss costs on uninsured motorist coverage within the assigned risk plan in Central Los Angeles would indicate that premiums should be set for that phase of assigned risk coverage at an annual rate of $369. But, she noted, she had approved a premium increase only from $111 to $200.
The assigned risk system does not sell the collision and comprehensive coverage demanded by many institutions that make automobile loans and carried by most drivers who are insured. It is these premiums that have pushed total auto insurance costs for many drivers in inner-city areas up into the $2,000 to $3,000 annual range.
For the minimum state-required liability coverage, the new annual assigned risk rate for adult drivers with no traffic citations or accidents in the last three years will be $575 in a wide area of Southern California, including Central Los Angeles, Westside, San Fernando Valley, the South Bay area, Long Beach, San Diego and parts of San Gabriel Valley.
In other areas, such as Orange County, Riverside and Whittier, where claims are less costly, the minimum liability coverage will be obtainable under the new order for $491.
Increases Depend on Areas
This represents varying increases, depending on the area. For instance, in Central Los Angeles the old liability rate was $516 and the new level represents only an 11.4% increase. But the new $575 rate in the western San Fernando Valley, Beverly Hills and the Palos Verdes Peninsula represents a 26.7% increase.
The $491 rate in Orange County represents only a 4.7% increase.
All rates are higher, and in some cases considerably more, for young drivers and for drivers who have had traffic violations or accidents.
David Kuizenga, the state manager of assigned risk, said he and the insurers on the assigned risk governing board were “pleased” with the increase ordered Thursday “although it’s way below what we need.”
“Most disturbing is where she (Gillespie) says she won’t entertain any other increase for 12 months,” he added.
