Auto Insurers Have All the Risk Factors Covered
Automobile insurance costs are jumping sharply in California, an unpleasant reality that will deliver a disproportionately harsh jolt for many individuals.
Allstate Corp., the state’s third-largest insurer, announced last week that automobile insurance rates would move up by 8.9%, adding $64 to the average policy, which now costs $718 annually.
Other insurers also are seeking to increase rates, saying they are losing money on their policies in California and need the higher rates to meet rising claims.
Although the average rate bump is bad enough, some policyholders are going to get stung by even larger increases, though others will see smaller increases or even declines in their annual premiums.
“When you hear that a company gets a 6.9% rate increase, that doesn’t mean that everybody gets that,” said Mike Edwards, a Department of Insurance bureau chief who has regulatory authority over a portion of the industry. “Some may get a 15% increase and some may get a decrease.”
Indeed, if you’re a teacher, lawyer, doctor, scientist or engineer, you may be lucky and get a discount. If you’re a cook, politician or priest, you’re nothing special in the eyes of the insurance industry.
How could that be possible? Why should a doctor but not a nurse get a break? Why should a lawyer but not a lifeguard at the beach get a break?
It is all part of the calculus of California’s remarkably complex automobile regulatory apparatus that can raise or lower rates for individuals and families based on 19 factors. The system leaves even experts confused sometimes.
“I wish there was a clear-cut breakdown, but there isn’t,” said Pete Moraga, spokesman for the Insurance Information Network of California, an industry trade group. “If I can’t understand it, I can’t imagine how others feel who aren’t involved on a daily basis. It is complicated. [But] I don’t think it’s as bad as the tax code.”
Maybe. Under state law and Department of Insurance regulations, the industry sets auto rates based on three primary and 16 secondary factors.
The primary factors--years of experience, driving record and miles driven per year--account for 75% of the premium. The others, which range from logical to bizarre, account for the rest.
In the world of insurance, if you’re married, that’s good. If you smoke, that’s bad. But if you’re a fast-food junkie, it doesn’t matter because there are no regulations that deal with the folks who stuff their mouths with ketchup-coated French fries while behind the wheel.
If you’re a young man, that’s very bad. If you’re a young man with good grades in school, that’s not quite as bad. If you’re an elderly lady, that may be good or bad--at some point, years of experience transforms from a positive to a negative.
Of the secondary factors, your home address tops the list: If you live in Orange County, that’s generally good. If you live in Los Angeles County, you’re probably toast. One exception is Catalina Island, where you can’t even have a car.
Other secondary factors include the type and performance characteristics of the vehicle, engine size, type of safety devices on the vehicle, type of vehicle use and the percentage the vehicle is used by the rated driver. Also, the driver’s academic standing and gender, whether the driver smokes, whether the driver has completed a driver education program, whether the rated driver is part of a household with other vehicles and whether the driver or that household has multiple policies. And finally, a broad category called secondary driver characteristics, and the relative frequency and severity of claims filed by all drivers where the car is garaged.
Then there are group discounts. They are why teachers and others get occupational discounts. To obtain regulatory approval for such discounts, insurance companies must show that the group has smaller claims or that the company can market insurance to the group at a lower total administrative cost.
“It requires a large number of risks to do that,” Edwards said. “It would suggest that you couldn’t do it for professional basketball players, because there aren’t that many of them. But you could do it for teachers and lawyers.”
In addition to the group discounts, there is the good driver discount. Good drivers are defined as the folks with no more than one point on their records. A point is generally one moving violation or one at-fault accident. Good driver points are kept by the Department of Insurance and are not related to the points kept by the Department of Motor Vehicles.
Good drivers get a 20% discount. But good drivers who get into an accident and earn a point can see their insurance rates shoot up even though, with only that one point, they remain good drivers, Moraga acknowledged.
The contraption that controls these rates is a product of Prop.103, the 1988 ballot measure that was supposed to fix the automobile insurance problem in California.
After voters approved it, it was left to the Legislature and the Insurance Department to develop the rules to implement the measure.
The department gets about 9,000 filings a year from insurers asking to adjust rates or make other changes in their operating practices. Lately, they have been seeking higher rates, Edwards said.
“Companies are pushing the envelope against the rate-making standards we have,” he said.
“We haven’t been able to give them all that they want, but in some cases their losses are so tremendous we do give them all that they want.”
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Ralph Vartabedian cannot answer mail personally but responds in this column to automotive questions of general interest. Write to Your Wheels, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. E-mail: ralph .vartabedian@latimes.com.
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Figuring the Factors
