Questionnaire May Herald Insurance Pricing Changes
In what could foreshadow a new approach to pricing auto insurance, the Automobile Club of Southern California is sending a detailed questionnaire to its policyholders, asking them such questions as whether they drink or smoke, exactly where they park their car and how many miles they commute each day to work.
The aim, said the Auto Club’s director of underwriting, Alan Morris, is to compile a more precise personal record on each of the club’s 1 million customers in preparation for enforcing Proposition 103’s mandated downgrading of territorial rating--the ZIP code where one lives--as a key pricing criterion.
“There is a clamoring in the public saying, ‘I want my premium to be based on me, not where I live,’ ” Morris said. “But we’ve found there is a reluctance to answer some of these questions.”
About 40% of those receiving the club questionnaire have not returned it. The questions include whether policyholders have “consumed alcohol” or “smoked tobacco” in the last 12 months, or whether those 55 or older have taken a Department of Motor Vehicles-approved eight-hour “Mature Driver Improvement Course.”
The organization recently sent out a “second request,” telling its policyholders: “Please reply promptly. The questionnaire includes new information we must have for rating purposes under Proposition 103.”
Other major companies, such as Farmers, say they are waiting to see exactly what regulations on new methods for pricing policies are promulgated later in the year by state Insurance Commissioner Roxani Gillespie.
But a spokesman for 20th Century, Rick Dinon, said Monday: “One thing that’s very clear is that the data our company is going to need from its policyholders will have to be broader and more accurate, as well as more timely. . . .
“Under 103, you do need more information and it needs to be specific to that individual.”
Proposition 103 states that beginning Nov. 8, 1989, the most important criteria for pricing auto insurance, in order of priority, must be “the insured’s driving safety record, the number of miles he or she drives annually (and) the number of years of driving experience the insured has had.”
Only after those three factors is the insurance commissioner allowed to “adopt by regulation” other factors she believes “have a substantial relationship to the risk of loss.” She can assign a “respective weight” to be given to each of these other factors, but none of the additional factors can be as important in pricing as the first three factors.
Harvey Rosenfield, chairman of the Proposition 103 campaign, said this week that he believes that the Auto Club’s questionnaire, about which he said he had heard many consumer complaints, is premature, since the commissioner has not yet issued any regulations. And he suggested that the questionnaire is too nosy.
But the Auto Club’s Morris said, “We will reach a point when we start surveying our policies that come up for renewal in November that we will have to have sufficient information to comply with whatever rating plan the insurance commissioner promulgates.”
This is presuming that the state Supreme Court upholds that part of Proposition 103 when it rules on its constitutionality sometime this spring. State Farm’s general counsel, Pete Ingham, said Monday that his company, the largest seller of auto insurance in California, is delaying sending out any questionnaire until it sees how the high court rules.
But the Auto Club is getting ready now, and customers are being told that a response is necessary by a specified date.
Detailed Questions
The form is quite detailed. It asks, for instance, whether the insured vehicle is parked mostly on the street or in a driveway, a carport or a garage.
Other questions concern whether the vehicle has an anti-theft device that either emits an audible burglar alarm signal, cuts off fuel or defeats ignition; whether it has been structurally or mechanically altered; whether it is driven more than once a week in a business, occupation or profession, or whether it has any special equipment such as four-wheel drive, winch or hydraulic lift.
As for the drinking and smoking questions, Morris said, “We have been asking them on new policies since early last year, but we never captured that information on our existing policies until this time.
“We don’t know what rating factors the insurance commissioner will, in fact, permit or require,” Morris said. “But if, for example, the commissioner would say that a nonsmoking discount is justified, we need to have that in our data base.”
Drinking Habits Asked
If a policyholder answers that he has “consumed alcohol” in the last year, “it would not (immediately) affect the rates or our willingness to insure,” the Auto Club official added. “The reason we’ve put that question in there is to determine sometime in the future if there’s a correlation between nondrinkers and drinkers in claim frequency.
“If you ask the question, ‘Are you a heavy drinker?’ no one will say yes.” So, Morris said, policyholders have been asked whether they drink at all on the assumption that most will answer that question honestly.
One of the most important questions being asked, he indicated, has to do with annual mileage. “Currently, we don’t charge by annual mileage,” he explained, “but under Proposition 103, that becomes an important factor.”
