Anti-Redlining State Rules Are Submitted
State Insurance Commissioner Charles Quackenbush has formally submitted for approval consumer-backed auto insurance regulations that force insurers to base premiums for California drivers on safety records and experience and less on motorists’ addresses.
The new anti-redlining rules--which Quackenbush had pledged in September to submit--are likely to have a widespread impact on millions of policies. But the extent and timing of those changes was not immediately clear. While drivers might see a change in rates as soon as three to four months, auto insurance companies are expected to seek to block full implementation of the new regulations through a lawsuit or other means, consumer groups said.
“I hope it’s the final word, but I’m concerned that they will [file suit],” said Diane de Kervor, staff counsel for the Proposition 103 Enforcement Project, a watchdog group that tracks compliance with the 8-year-old ballot proposition that called for the reforms that Quackenbush has submitted.
Quackenbush presented the complex set of rules to the Office of Administrative Law, a state agency that reviews regulations to make sure they conform with state law.
Barring legal challenges, the regulations are expected to take effect in 30 days, when that procedural review is completed, the commissioner’s office said. Insurance companies will be asked to submit guidelines that comply with the rules.
The Republican commissioner said the regulations mean that “where you live shall not be the dominant standard upon which rates are based,” and said they conformed with the will of the voters, who approved Proposition 103 in 1988 partly to reform the insurance industry.
“This is really a big victory for consumers,” said de Kervor at the Proposition 103 Enforcement Project.
But insurers, who say the rules will penalize good drivers in rural areas, were sharply critical.
“It makes no sense for the commissioner to abandon a sound, functional system . . . with one that will totally disrupt and artificially change the rules [by which] drivers pay for their insurance,” said Barry Carmody, president of the Assn. of California Insurance Companies.
Ratings that include geographic factors must be considered when determining loss-risk, they added.
“They don’t want territory considered, but we know that the repair rates and the medical costs associated with auto injuries are far higher in urban areas like Los Angeles County than they are in rural areas like Eureka,” said Jim Snyder, president of the Personal Insurance Federation of California.
“To suppress those geographical economic realities causes the driver in Eureka to substantially subsidize the driver in Beverly Hills, and that conflicts with another section of Proposition 103 that says rates should not be excessive, inadequate or unfairly discriminatory,” he said.
At a public hearing last year on the regulations, insurers said a Beverly Hills motorist with a good record might see a 28% drop in premiums, while a driver in Eureka might see a 49% boost.
Proposition 103 required insurers to mainly consider three factors when deciding their customers’ premiums--driving safety record, miles driven and years of driving experience. Although a number of other factors may be considered, insurers must give greatest weight to the three criteria, and in that order.
But regulators and consumer critics of the insurance industry said insurers were continuing to base rates primarily on a variety of other, subordinate factors, that included the driver’s ZIP Code, marital status, gender, age, academic standing and other items.
Meanwhile, legislation written by Sen. Steve Peace (D-San Diego) is before the Senate Judiciary Committee that would nullify the regulations and allow insurers to base rates on criteria of their choice. With the new regulations, that bill is likely to become one of the year’s major lobbying battles.
