Assigned Risk Rates to Rise Average of 85%

Insurance Commissioner Roxani Gillespie on Wednesday ordered an immediate statewide rate increase averaging 85% for the more than 1 million drivers in California’s assigned risk auto insurance system, a decision that could prompt many to abandon coverage.

For urban drivers with good records, annual rates for the minimum state-required liability insurance will rise to $1,000. For drivers with bad records, rates will go as high as $2,110. In many suburban Los Angeles and Orange County neighborhoods, the increase will be more than 100%. The prices do not include either collision or comprehensive coverage.

Gillespie said the increase was necessary “to take some of the tension out of the auto insurance market pricing structure” by cutting losses sustained by the insurance companies in providing assigned risk coverage. It was the first assigned risk price hike she has approved in three years and followed her earlier rejection of a requested 112% increase.

Gillespie called it an “interim” increase but her attorney, Karl Rubinstein, said that for all practical purposes the rate hike will be permanent.

At the same time, the commissioner pledged that her year-old freeze on auto insurance rates in the regular market--instituted as a follow-up to Proposition 103--will remain in effect at least until an elected commissioner takes over in January.

Knowledgeable insurance agents said, however, that the 85% assigned risk increase by itself is apt to induce hundreds of thousands of drivers to stop carrying auto insurance, and ultimately lead companies to seek approval for sharp increases in uninsured motorist premiums for those who continue to carry insurance.

Stringent enforcement rules for the state’s mandatory insurance law are due to expire Jan. 1, and agents warned that California is facing a situation in which up to half the drivers soon may be uninsured, compared to the 25%--or 5 million--that the Department of Motor Vehicles estimates are uninsured now.

Some companies had a different view, saying the decrease in subsidies that regular customers have been charged to cover assigned risk losses would lead, initially at least, to lower rates for the regular customers. Farmers, for example, said it would lower its rates, but it did not say by how much.

Assigned risk is a system under which drivers supposedly unable to obtain coverage in the regular market are assigned to companies in proportion to each company’s share of the statewide auto insurance business.

However, in recent years, with Gillespie holding assigned risk rates down, many good drivers have enrolled for assigned risk coverage because it is cheaper for them than buying regular coverage. The increase ordered Wednesday by Gillespie takes away this relatively inexpensive coverage, particularly in urban areas.

Presently, about 55% of those with assigned risk coverage qualify as good drivers, with no more than one minor driving violation in three years. In recent months, it has been made tougher for good drivers to enroll in the system. Required is an affidavit saying they have been turned down for coverage for specific reasons, but there have been reports the affidavit requirement has been applied inconsistently. Some agents continue to sell only assigned risk policies.

Gillespie acted in the midst of hearings her department is holding on a new requested increase of 160.5% by the insurer-dominated assigned risk governing board, and her increase found scant approval Wednesday outside her own department and the insurers who would benefit.

A spokesman for Gov. George Deukmejian, who appointed Gillespie to the commissioner’s post, said the governor had not seen Gillespie’s figures and that Gillespie was “on her own” in approving the increase. The spokesman denied an earlier report that Deukmejian had approved the 85% increase.

The spokesman did say, however, that the governor’s office had ordered Gillespie several weeks ago to delay an earlier planned announcement of the increase to get through the recently ended legislative session without roiling the political waters.

Both major party candidates running to become the state’s first elected insurance commissioner, Democrat John Garamendi and Republican Wes Bannister, said Wednesday the hikes in assigned risk rates point up the urgent need for the Legislature to approve an affordable, no-frills policy that will supplant assigned risk and induce drivers to keep carrying auto insurance.

Garamendi and Bannister, however, remained sharply divided on what kind of affordable policy. Bannister favors a proposed $180-a-year no-frills, no-fault policy that would entail a drastic cut in the income of the state’s trial lawyers. Garamendi says the lawyers are not primarily to blame for high insurance prices and he opposes no-fault.

Bannister was speaking to a breakfast of San Fernando Valley insurance agents when word spread of Gillespie’s decision. Several agents told Bannister that this could lead to such a dramatic rise in the numbers of the uninsured as to throw the entire auto insurance system into disarray and possibly increase the pressure for state-run insurance.

Consumer organizations blasted the increase. Robert Gnaizda of Public Advocates Inc., who represents a coalition of 15 minority and low-income groups in departmental rate hearings, declared:

“Commissioner Gillespie has made the largest illegal gift to the insurance industry in its history. This pre-Christmas gift by a lame duck commissioner could exceed $800 million.”

Gnaizda charged that Gillespie had “made a mockery” of her own assigned risk rate hearings by ordering the increase before they were over.

But Gillespie’s attorney, Rubinstein, responded that the increase is pursuant to conclusions reached in earlier hearings.

Rubinstein said the insurers’ new demand for a 160% increase would be denied.

Steve Feely of the Farmers group of companies, who is this year’s chairman of the assigned risk governing board, applauded Gillespie’s action as a good first step.

“This is a welcome relief, but it is only a step in the right direction if the (assigned risk) plan is to be put on a sound footing,” he said. He went on to note that “our 1989 recommendation for a 112% increase was upheld” by both a department hearing judge and a Los Angeles Superior Court judge, “and we are currently presenting our recommendation for a 160% increase.”

Feely asserted that the state’s insurance companies lost $630 million handling assigned risk customers and their claims in 1989 alone.

ASSIGNED RISK RATE HIKES

Insurance Commissioner Roxani Gillespie on Wednesday ordered an average statewide increase of 85% in assigned risk rates for the more than 1 million drivers in the system. But the increases will fall somewhat unevenly, depending on where a driver lives and how many violations or accidents he or she has had. Some examples from selected areas: LOS ANGELES SUBURBS Driving category: Adult owners with no penalty points Old rate: $491-$575 New: $1,000 Driving category: Male operators under 25 with no penalty points Old rate: $597-$737 New: $1,280 Driving category: Adult drivers with 3 penalty points Old rate: $561-$643 New: $1,130 Driving category: Adult drivers with 12 penalty points Old rate: $1,091-$1,175 New: $2,110 CENTRAL LOS ANGELES Driving category: Adult owners with no penalty points Old rate: $575 New: $1,000 Driving category: Male operators under 25 with no penalty points Old rate: $737 New: $1,280 Driving category: Adult drivers with 3 penalty points Old rate: $645 New: $1,130 Driving category: Adult drivers with 12 penalty points Old rate: $1,175 New: $2,110 ORANGE COUNTY Driving category: Adult owners with no penalty points Old rate: $491 New: $1,000 Driving category: Male operators under 25 with no penalty points Old rate: $597 New: $1,280 Driving category: Adult drivers with 3 penalty points Old rate: $561 New: $1,130 Driving category: Adult drivers with 12 penalty points Old rate: $1,091 New: $2,110 SAN DIEGO COUNTY Driving category: Adult owners with no penalty points Old rate: $575 New: $1,000 Driving category: Male operators under 25 with no penalty points Old rate: $737 New: $1,280 Driving category: Adult drivers with 3 penalty points Old rate: $645 New: $1,130 Driving category: Adult drivers with 12 penalty points Old rate: $1,175 New: $2,110 RURAL CALIFORNIA Driving category: Adult owners with no penalty points Old rate: $491 New: $887 Driving category: Male operators under 25 with no penalty points Old rate: $597 New: $1,135 Driving category: Adult drivers with 3 penalty points Old rate: $561 New: $1,017 Driving category: Adult drivers with 12 penalty points Old rate: $1,091 New: $1,997 NOTE: Drivers with “penalty points” are those who have had violations or accidents. A speeding ticket, for example, counts for one penalty point, an at-fault accident for two, reckless driving for four and drunk driving for six. Penalty points last at least three years and in drunk driving they last seven years. About 55% of drivers in assigned rish have no penalty points. Under the old rate structure, in urban areas, assigned rish often provided the least expensive liability insurance.

Source: Dept. of Insurance