State Orders Changes in Auto Insurance Pricing
State Insurance Commissioner Chuck Quackenbush on Wednesday ordered the immediate implementation of new auto insurance rating plans that he said would save Californians $361 million in the first year.
Under the plans, a motorist’s driving record, annual miles driven and number of years behind the wheel will take precedence over traditional ZIP Code-based territorial rating systems. The new rules took effect Wednesday, but drivers won’t be affected by them until their policies come up for renewal.
“Today marks another cost savings victory for consumers,” said Quackenbush at a Los Angeles news conference. “Our mission has been to lower insurance rates for California drivers, and today we are delivering on that promise.”
Quackenbush said some rates in central Los Angeles will go down 40% to 50%. Less publicized was the fact that some rates will climb for drivers in other parts of the state and those with poor records.
But estimates varied on the amount of cuts and increases and the effects on the average driver.
Dan Dunmoyer, a Sacramento lobbyist for State Farm Mutual, the biggest seller of auto insurance in the state, said the company will not cut Los Angeles rates more than 18%.
Statewide last year, private passenger auto premiums exceeded $12 billion. A $361-million cut is about 3% of that figure.
Quackenbush released a chart showing that, statewide, State Farm Mutual rates will drop $117.9 million, or 5.3%. For Farmers Insurance, the figure is $27.4 million, or 1.6%; for 20th Century, $22.4 million, or 3.3%; for the Automobile Club of Southern California, $21.1 million, or 2.4%; for the Mercury Group, $27.5 million,. or 1%; and for USAA General, $29.4 million, or 10%.
It is the first time that any California insurance commissioner has promulgated formal rules under provisions of Proposition 103, passed by voters nine years ago, to give less weight to place of residence as a factor in pricing.
Prior commissioners John Garamendi and Roxani Gillespie had used temporary emergency rules to try to accomplish the same thing but fell short.
The issue is difficult politically, because ending so-called territorial ratings meant in the past that more California motorists would have had their rates increased than lowered.
However, Quackenbush is having an easier time of it because lawsuits in auto accidents have dropped sharply, reducing insurance costs overall. So the adverse impacts of changing the system are cushioned to a large extent.
Nonetheless, some industry groups and their frequent adversary Harvey Rosenfield, the author of Proposition 103, criticize the new rating plans.
Barry Carmody, president of the influential Assn. of California Insurance Companies, said last week of the plans:
“It’s going to be a lottery of sorts. A crapshoot. There will be winners and losers. There will be cases of good drivers paying more so bad drivers can pay less. Some areas of the state will be subsidizing drivers in other areas. Some older drivers could end up subsidizing younger, inexperienced drivers. In short, there will be a great deal of confusion and probably some anger.”
But Dunmoyer said most of the companies that he represents will reserve judgment on the plans until they see how they work out.
Rosenfield said the plans do not go far enough in eliminating residency as a pricing factor. His group, Proposition 103 Enforcement Project, demanded public hearings on the issue. Those have been mostly completed and could result in some revisions by the end of the year.
In an unusual incident before Quackenbush’s news conference, Rosenfield, a possible challenger to the commissioner in next year’s election, was ejected from the room by state police officers on grounds that he did not have a press credential. However, others without such credentials were allowed to stay.
Lt. Mark Lann, Los Angeles commander of the California Highway Patrol’s Office of Dignitary Protection, said a mistake was made by a subordinate. “It’s not our job to become politically involved,” he said.
Lann said Quackenbush’s press secretary, Dana Spurrier, had asked that Rosenfield be ejected.
Spurrier said, however, that she had been told that a security alert was the reason for the ejection. But Lann said there was no alert.
Quackenbush said he knew nothing about the matter.
The commissioner said at the news conference that he saw no reason why insurers could not comply immediately with the rating plans.
There was no indication from industry spokesmen Wednesday that the companies would not comply. However, in the past, there occasionally have been long procedural delays in implementing commissioners’ orders.
For instance, Quackenbush ordered months ago that the companies stop levying surcharges on auto policies sold to previously uninsured drivers.
He said at the news conference that the new rating plans ban such surcharges and that he thinks they will disappear.
But Gina Calabrese, a lawyer for Rosenfield, said a careful reading of the new plans shows that there are loopholes by which a surcharge can still be levied.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Cheaper Car Insurance
Changes in the way auto insurance is priced, putting less evidence on place of residence, will bring about widespread rate reductions. Insurance Commissioner Chuck Quackenbush on Wednesday released these company-by-company statewide averages:
*--*
Company Rate Change Total Cost Reduction State Farm Mutual Down 5.3% $117.9 million State Farm General Down 11.7% $9.3 million Farmers Down 1.6% $27.4 million CSAA Down 5.0% $62.9 million 20th Century Down 3.3% $22.4 million Auto Club of So. Calif. Down 2.4% $21.1 million Mercury Group Down 1.0% $27.5 million USAA General (Indemnity) Down 10.0% $29.4 million
*--*
