Auto Insurers File Suit Over New Risk-Assessment Rules

SACRAMENTO -- The auto insurance industry fought back Thursday against Insurance Commissioner John Garamendi, challenging in court new state regulations outlawing auto insurance rates based primarily on where a driver lives.

The three major trade groups representing companies that write 90% of the state's auto insurance policies announced Thursday that they sued the commissioner to overturn the rules that took effect a week ago.

Unless a judge steps in, the companies are required to file new rate plans by Aug. 14 that would assess risk based mainly on a motorist's driving record, miles driven and years behind the wheel.

"It really got to the point where we really had no other option than to sue," said Sam Sorich, president of the Assn. of California Insurance Cos., one of the three plaintiffs. "If the regulations do take effect, millions of drivers would be paying more than they would have for car insurance."

Insurers have been jousting with Garamendi all year over his efforts to implement an unfulfilled portion of Proposition 103, approved by voters in 1988.

Proposition 103's proponents, now joined by the elected insurance commissioner, want to enforce the ballot measure's prohibition on so-called ZIP Code-based risk assessments.

Garamendi got his way last week when he won final approval for his regulations from the California Office of Administrative Law. Insurers immediately threatened to take legal action and made good on their warning Wednesday, filing a suit in Sacramento County Superior Court.

Insurers contended the regulations would unfairly hike premiums for drivers in suburban and rural areas and provide subsidized coverage for residents in Los Angeles, San Francisco and other large cities.

The suit argues that the regulations are illegal and arbitrary because they set rates that are not closely related to the increased risk of driving in densely populated cities that have more traffic and higher crime.

The lawsuit was filed by the Assn. of California Insurance Cos., the American Insurance Assn. and the Personal Insurance Federation of California. A similar suit was also filed by the California Farm Bureau Federation.

Garamendi and consumer advocates said the lawsuits would not keep them from enforcing the new prohibition against pegging premiums to geography. They say that drivers in one neighborhood often pay far more than people with similar driving records in other parts of town.

"Since 1988, this industry has unfairly discriminated against good drivers all over this state by charging excessive rates based primarily on ZIP Codes," said Garamendi. "It is time for insurers to wake up, stop fighting the reforms and do what's best for their customers."

He noted that the Automobile Club of Southern California, the fourth-largest auto insurer in the state, announced this month it would jettison ZIP-Code rating and would cut premiums for 88% of its members.

The Auto Club's agreement to the new regulations would reduce rates by an average of 7% for most policyholders.

The move "proves that good drivers win when insurance premiums are based mostly on driving records and not ZIP Codes," said Norma Garcia, a senior attorney at the West Coast office of Consumers Union, which publishes Consumer Reports magazine.