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Insurance Industry Seeks To Block California Rate Reforms

July 20, 2006

California Car Insurance • California Orders Allstate to Lower Car Insurance Rates 15% • Insurance Industry Seeks To Block California Rate Reforms • Political Firefight Over California Auto Insurance Rates • California Dumps Zip Code-Based Auto Insurance Rates --- • More about Auto Insurance

The insurance industry filed suit late Wednesday to block California's auto insurance reform regulations from taking effect. The rules, crafted by Insurance Commissioner John Garamendi and given final approval by the Schwarzenegger Administration last week, implement a requirement of the 1988 voter-approved Proposition 103 that insurers base auto premiums on motorists' driving safety records and not ZIP code.

"The insurance industry wants to stick its heels in the mud and stop reforms that will save good drivers billions of dollars," said Douglas Heller, Executive Director of the nonprofit, nonpartisan Foundation for Taxpayer and Consumer Rights (FTCR).

"They want to charge some drivers with perfect records hundreds of dollars more for basic insurance because of the ZIP code in which they live. But the rules no longer allow that and the insurance companies' last-ditch lawsuit will be unsuccessful."

The suit was filed in Sacramento Superior Court by three insurance lobbying groups –- American Insurance Association, Association of California Insurance Companies and Personal Insurance Federation of California. An insurance industry lawyer filed a companion suit in Sacramento on behalf of the California Farm Bureau, which FTCR says has longstanding ties to the insurance giant Nationwide Insurance.

The suit seeks to restore previous regulations which have allowed insurers to place more emphasis on ZIP code and a motorist's marital status than on driving record.

The lawsuit complains the rules would be impossible to implement in a manner fair to all customers. But FTCR says last week Auto Club of Southern California announced that it would follow the Garamendi rules and would lower premiums for 88 percent of its policyholders by an average $134 each.

The Garamendi rules require insurers to reform their pricing systems over a two year period to ensure that driving safety records have more of an impact on premiums than ZIP codes or other secondary factors, such as the commonly used marital status factor. The new rules do not bar insurers from considering a customer's address in setting rates; the rules simply bar address from being prioritized over the policyholder's driving record, annual mileage or years licensed. By enacting Prop 103, voters required that those three factors play the biggest role in determining an individual motorist's premium.

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