Insurance Rules Would Hike Cost for Most Drivers

Most California drivers would pay higher auto insurance rates--and one in five would see hikes of more than 10%--under new regulations proposed by Insurance Commissioner John Garamendi.

Citing the requirements of Proposition 103, the 1988 insurance initiative, Garamendi plans to eliminate age, sex and marital status as factors that insurers may use to set rates. He also would sharply curtail the role that other factors such as place of residence or vehicle characteristics may play in rate-setting.

The unintended result is that certain higher-risk driver categories--especially young, single males--would get a price break at the expense of lower-risk groups, particularly older drivers.

In an analysis of the proposed regulations that the department prepared in May, researcher Lyn Hunstad wrote: “The early seniors (ages 55-69) on average see a 9% increase in premium, and over a third see an increase of greater than 10%. One out of five of the total population is estimated to see a premium increase of greater than 10%.” The average premium increase for all adult drivers would be 2%.

Meanwhile, she added, “a small percentage of younger drivers see a substantial reduction (up to 22%) in their premium.” Single women younger than 50 would also get lower rates.

The insurance industry plans to contest the proposed rules during public hearings today in Los Angeles and next week in San Francisco.

“Californians should prepare themselves for another massive upheaval in auto insurance rates” if the regulations are adopted, said Thomas A. Aceituno of the Assn. of California Insurance Companies, a trade group.

Allstate Insurance Co., California’s third-largest auto carrier, says that 54% of its good drivers (as defined by Proposition 103) would get rate hikes, while 63% of its “non-good drivers” would see premium declines.

“We knew there was going to be some dislocation, and that’s why we’re holding the hearings,” William Ahearn, deputy insurance commissioner for rate regulation, said Thursday afternoon.

Ahearn said the department is under the gun to comply with Proposition 103 provisions that were meant to suppress the effects of such factors as place of residence, age, gender and marital status, partly on the grounds that insurers might use them to discriminate against poor, gay or minority consumers.

Garamendi proposed the regulations in June but, uncharacteristically, did not announce them in a press release.

“We kept it kind of quiet because there was a lot for us to chew over,” Ahearn said.

The department has been regulating auto rates under emergency rules since May, 1990, when a Los Angeles Superior Court judge threw out regulations imposed by former Insurance Commissioner Roxani M. Gillespie.

Gillespie was trying to eliminate ZIP codes--as well as age, gender and marital status--as rating factors. However, Judge Miriam A. Vogel ruled that auto insurance pricing must be cost-based--and where one lives influences cost.

The Insurance Department appealed the ruling, but the appeals court has withheld a decision, saying it plans to wait until Garamendi submits regulations of his own.

Garamendi interprets Proposition 103 to say that each of three main factors--driving record, number of miles driven annually and years of driving experience--must predominate over any other considerations in rate-setting.

Under “sequential analysis,” the statistical tool used to set their rates under the emergency regulations, the top three factors are important but they could still be outweighed by sex, marital status or ZIP code. The department is determined to create a formula that would not allow that to happen.

“Sure, there’s an element of social engineering in this,” Ahearn said, “but that’s what Proposition 103 says.”

Eliminating age, sex and marital status from the calculations will result in single males getting the best price breaks in almost every important type of coverage. For example, single males in the 16-20 age group would see decreases of 24% for bodily injury coverage, 31% for property damage, 34% for collision and 37% for comprehensive, according to the Hunstad analysis.

In contrast, adults ages 55-69 would see increases of 9% for bodily injury coverage, 6% for property damage, 9% for collision and 19% for comprehensive.

Young males would not be the only beneficiaries of the rule changes. Single females ages 16 to 20 would get a 16% price break in total premiums, and single females ages 25 to 49 would get a 10% decrease.

Another consequence of the regulations would be that certain price discount programs that insurers now offer might be illegal, Ahearn acknowledged.

Farmers Insurance Group this week announced discounts of up to 30% for beginning teen-age drivers who take a Farmers safety course with their parents. That program would probably have to be eliminated or severely cut back because it gives more weight to a safety course than to the three factors specified in Proposition 103.

Garamendi can implement the changes without legislative approval, but they must first pass muster with the state Office of Administrative Law.