Auto Insurers Warn of 175% Rate Increases : Regulation: They decry proposed changes in ZIP code-based premiums. Consumer groups call system unfair.
Insurers fighting to preserve the current auto insurance rating system warned Friday that California drivers could face rate hikes of up to 175% under regulations proposed by Insurance Commissioner Chuck Quackenbush.
By reducing the importance of a driver’s address in calculating insurance premiums, the new rules would shift much of the rate burden from city drivers to rural ones, the companies argued in a public hearing in Los Angeles.
But consumer advocates who support Quackenbush’s initiative said the current “territorial rating” system is so arbitrary and unfair that two motorists with identical driving patterns and safety records living a block apart in Long Beach could have a $615 disparity in annual premiums simply because they live in different ZIP Codes.
State Insurance Department studies do not support the insurers’ contention that rates will rise 175% for some drivers, department spokesman Richard Wiebe said Friday.
“We show no dislocations like that, even if you completely eliminate territory as a factor--and we’re not doing that,” he said.
Quackenbush unveiled the regulations in September in an effort to implement one of the last unfinished reforms of Proposition 103, the 1988 insurance initiative. The rules require insurers to weigh three factors above all others in calculating rates: driving safety record, miles driven annually and years of driving experience.
The regulations allow other factors--including ZIP code, marital status, age and gender--to be considered as well, but they must be subordinated to the top three. Quackenbush has said he expects rates for “safe, low-mileage, experienced drivers” to decline while those for younger drivers or people with poor driving records or high mileage would rise.
Irene K. Bass, an actuary representing Farmers Insurance Group, California’s third-largest auto insurer, said the goal should be to find the factors most closely associated with risk of claims loss. Artificially suppressing some factors or boosting others results in rates that aren’t truly cost-based and thus are arbitrary, she said.
Farmers, in a separate statement on how the regulations might affect its 2 million California customers, said drivers in Beverly Hills might see their rates drop 28%, while those in Eureka could see a 122% increase. Another result could be rate increases for older drivers and decreases for younger ones, Farmers said.
However, Diane de Kervor, staff attorney for the Proposition 103 Enforcement Project, said insurers only pretend that their rates are completely cost-based. In fact, she said, the companies “tweak” their prices to attract a particular mix of customers for reasons that have less to do with claims risk than with marketing strategies.
After considering Friday’s testimony, Quackenbush will implement a final set of regulations, probably early next year, Wiebe said.
Expecting an adverse result, the industry has a backup plan: A bill that failed in the Legislature this year but is being revived for the next session would negate Quackenbush’s regulations by writing into law a set of rules the industry favors.
