Drivers Finding Search for Insurance More Difficult
In light of Insurance Commissioner John Garamendi’s promise to suspend further auto insurance rate increases, Alex Baum was unpleasantly surprised this summer when 20th Century sent him a bill that was $259, or 34%, higher than his last one.
“I called them and they told me that due to Proposition 103, they don’t give an elderly discount any more,” said the 65-year-old North Hollywood resident, a driver in California since 1960. “And also, they said our premium had gone up because we didn’t have enough years of driving experience . . . but when I tried to get into specifics they got very annoyed.”
In West Hollywood, Lou Rosen became irate when his premium with the Hartford Co. doubled, from $803 to $1,621 a year.
“I’d had no tickets, no violations, no accidents--I was spotless,” Rosen said. “So I decided to quit Hartford and buy from someone else.”
But that wasn’t as simple as Rosen thought.
“Colonial Penn wouldn’t even send me an application,” he reported. “Mercury said no. 20th Century and Nationwide accepted applications but wouldn’t sell me a policy immediately. Kemper quoted me $2,800 and Farmers wanted $2,000.” When he called The Times, Rosen was still looking.
Buying auto insurance--or simply trying to keep what you have--has become a more difficult, frustrating chore in California in the three years since voters demanded reforms by passing Proposition 103. With the apparent failure of the Legislature to revamp the insurance system this year, Garamendi warned last week that the situation will only worsen.
Already, he said, uninsured motorists make up as many as 30% of California’s more than 20 million drivers.
Why are prices still going up despite Garamendi’s freeze? Why are some people with perfect driving records having difficulty finding insurance, despite the provision in Proposition 103 that companies are obligated to take all comers who qualify as good drivers?
The answers lie in the confusion created by the legal battle over Proposition 103 provisions that mandated rate rollbacks, guaranteed that good drivers would have access to insurance, and changed the main basis for pricing auto premiums away from the home address of the insured driver.
“Until all these things are clarified by the courts, auto insurance will be a muddle,” remarks Kent Keller, a lawyer who represents a number of companies in their fight against implementation of Proposition 103.
Garamendi vowed when he took office in January to freeze rates, at least until companies comply with the rollback provisions of Proposition 103. But his predecessor, Roxani Gillespie, had already allowed more than 70 insurance companies to raise their rates.
Some increases were small, others larger, but all were stated to the public as averages. For individual customers, however, the increase in premiums has often been much higher than the company’s average--a 40% average increase sometimes translating into a 100% hike in a person’s insurance bill.
A Beverly Hills man, who didn’t want his name used, said he was so shocked by a price increase of more than 100% from Hartford that he asked the company to re-examine the bill. When the company did, it notified the man he would have to pay even more.
Other decisions by Gillespie had instructed the companies to make broad changes in their method of deciding individual rates. Insurers were told to base rates mainly on the Proposition 103-mandated factors of driving record, miles driven and years of driving experience.
Even before Gillespie acted, however, Los Angeles Superior Court Judge Miriam Vogel ruled that the ZIP code of the driver’s home--the traditional factor used by companies to set prices--could still be considered as a major factor despite restrictions on its use under Proposition 103.
The Vogel decision is under appeal, but in the meantime the contradictory directions given to insurance companies have led to complicated premium recalculations, sometimes quite different company by company, that are just now showing up in some bills.
Michael Sachs of Oakland, for example, moved just a few miles within the San Francisco Bay Area, but was notified of a 42% rate hike by Nationwide, his insurer. When Sachs complained to the Insurance Department, he was told that yes, the new Proposition 103 factors were being used, but so were the old criteria based on his home address.
Some policyholders have also reported sudden, unexpected cancellations of coverage.
John T. Ryan of Glendale said his Allstate agent called one day earlier this year to inform him that his 30-year-old daughter, Judith, was no longer covered--even though the agent had said a month earlier, when Judith purchased a new car, that she would be covered.
Ryan said he asked the agent why he was informing him and not his grown daughter.
“I asked him how he could allow our daughter to be traveling, perhaps at the very minute we were speaking, on the highways and byways of L.A., in a new car, thinking she was insured (when she wasn’t),” Ryan said. “(He) wouldn’t answer.”
Other customers tell of losing their insurance simply because their checks arrived a day late. A number of companies have ceased giving any grace period on bill payments.
As for the “take all comers” provision of Proposition 103, it is being so widely ignored by insurers that Garamendi has “temporarily” accepted arguments by Allstate that the insurer should be allowed to sharply curtail its sales of new policies in California. The reasoning--it was unfair that Allstate should be required to honor take-all-comers while most other companies didn’t.
Allstate has ordered its agents to stop giving price quotes over the telephone or to advertise in telephone directories. Agents were told not to guarantee a policy to any new customer without home office approval, and policyholders who buy new cars are being required to come into their Allstate agents’ offices to have the cars photographed.
A group of Allstate agents announced last week they are planning to sue, saying the new rules restrict their ability to do business in California.
Agents for other insurers have also complained about being discouraged from selling new policies, saying that if they issue too many they risk being dropped as agents by their companies.
The Insurance Department recently issued a report that declared, “Insurance is unavailable in many areas of the state,” especially in minority and low-income areas.
At a recent hearing called by Garamendi, a dozen Latinos, blacks and Asians testified that they cannot find agents in their neighborhoods willing to sell them anything but assigned risk coverage or policies with unlicensed carriers of dubious financial standing. Others told of pretending to be Anglo and being offered much lower prices.
The dramatic high point of the hearing came when Patricia Moore, a black Compton city councilwoman, said she lied about where she lived to obtain insurance. She also hid from insurers that her 21-year-old son lived with her.
Even when insurance can be found, there are complaints that agents fail to provide information necessary for customers to make rational choices about coverages.
Lorraine Ferris of West Los Angeles said her agent did not tell her about uninsured motorist coverage. She was injured in an accident in which the other driver was at fault but had no insurance.
“I’m dead broke now,” Ferris said last week. “I have to pay all the deductibles and some of the medical costs . . . this insurance stuff has got to end. People who are average human beings, trying to make their way in Southern California, are the victims.”
In addition to surprise rate increases, the refusal to sell to new customers, and claims of racial discrimination, drivers face other serious problems obtaining insurance in the current market.
Prices for assigned risk insurance--for the minimum amount of liability coverage the state requires--have gone up an average of 85% in California in the past year, pushing the minimum price to $1,000 annually in metropolitan areas. Assigned risk is sold largely to drivers with bad records who cannot obtain insurance with regular companies.
Garamendi warned last week that the price of assigned risk may rise another 80% if the state Supreme Court rules, as he expects, that the system must be financially self-sustaining. Currently, assigned risk is subsidized by regular insurance premiums.
Many drivers, already unable to afford even assigned risk coverage, have been buying insurance from so-called “offshore” companies, registered in Caribbean nations and other foreign locations, and sometimes lacking the resources to pay claims.
The Insurance Department has been trying to shut down sales of such insurance, but the state Office of Administrative Law recently refused to accept regulations that would have banned many offshore companies from doing business in California.
Some drivers have also reported that with driving records being given more weight in rate hikes, their insurers have been too quick to designate them at fault in accidents. They said that being judged mistakenly at fault has led to huge premium increases, but that companies have set up obstacles to correcting the record.
Roger Platcek of La Crescenta said he found it very risky to report any accident, even if it had been certified to be the other driver’s fault. He reported such an accident to the state Department of Motor Vehicles, and the accident showed up on his record when he switched insurers, he said.
“What we did was follow the letter of the law and now we’re being screwed by it,” Platcek said.
Claire Brunk of San Leandro said she and her husband found their insurer, Mission Valley Insurance, would not try to collect from the other driver, even though he was clearly at fault in an accident.
“It’s just strange,” Brunk said. “My insurance company hasn’t done anything except raise my premium.”
BACKGROUND
Proposition 103, authored by Harvey Rosenfield and sponsored by Ralph Nader, was narrowly approved by the California electorate in November, 1988, and upheld in large part by the state Supreme Court in May, 1989. However, the court ordered alterations in Proposition 103’s mandate for a 20% rollback of 1989 insurance premiums. The court held that insurance companies were entitled to a “fair rate of return” before they could be compelled to reduce premiums. A legal struggle over rebates to consumers of the affected premiums, and other provisions of the measure, has been going on ever since.
