Auto Insurance Companies Fear That New Auto Rating Proposal Will Raise Rates for Good Drivers

Three insurance industry trade associations, representing over 75 percent of the auto insurance market, expressed concern over new auto insurance regulations proposed by the California Insurance Commissioner John Garamendi today. The three trade associations, the Association of California Insurance Companies (ACIC), the Personal Insurance Federation of California (PIFC) and the American Insurance Association (AIA) noted that the proposal will likely raise rates for most California drivers, including a majority of good drivers.

“Under the proposal offered today by the Commissioner, many good drivers will end up paying more so that others can pay less,” said ACIC President Sam Sorich. “Under the current system, rates are fairly charged to all drivers based on risk. To change the system will mean many good drivers will be paying more to subsidize other drivers in the state and we are very concerned about that unfairness.”

“We haven’t had an opportunity to fully analyze the proposal, but it appears that the Commissioner’s plan would unfairly price auto insurance for most California drivers,” said Michael Gunning, PIFC vice president. “This proposal appears to be the same as one presented to the commissioner more than a year ago. That proposal would raise rates for more than 60 percent of good drivers and increase rates generally in 52 out of the 58 counties the state of California.”

The year-old proposal was not implemented, but the provisions were the subject of public hearings and a detailed analysis by an independent actuary.

The actuary found:

— More than 60 percent of all California drivers — 13.5 million drivers — would experience rate increases.

— Nearly three quarters (73 percent) of California drivers with 34 or more years experience — generally drivers age 50 and older — would receive rate increases.

— 63 percent of California good drivers would receive rate increases.

— 56 percent of “bad” drivers — drivers not meeting the California good driver criteria — would receive rate decreases.

— 52 of California’s 58 counties would experience average rate increases.

“We’re committed to working with the Commissioner through the regulatory process,” but we remain concerned that this proposal could impose unfair rate increases for seniors on fixed incomes and Californians living in rural areas,” said Ken Gibson, AIA vice president.

The three insurance officials noted that the current regulations’ treatment of territory rating factors has been upheld by the California Court of Appeal. The Court found: “Unrefuted evidence establishes that territory is a more important determinant of the risk of loss than any other single factor.”