Bill will require study before Calif. auto rating factors can change

A bipartisan group of five assemblymembers joined with local elected officials and concerned citizens to support AB 2840, which they say will help ensure fair auto rates for all drivers. Supporters said the bill will be amended.

Assemblymembers John J. Benoit, R-Palm Desert, Joe Canciamilla, D-Pittsburg, Nicole Parra, D-Hanford, Doug LaMalfa, R-Richvale, and Lois Wolk, D-Davis, are coauthors. The bill is supported by the Regional Council of Rural Counties, California Farm Bureau Federation, local elected officials and the three insurance trade associations. Imperial County Supervisor Gary Wyatt, Dixon City Councilmember Mike Smith, Tulare County Supervisor Phillip Cox, Inyo County Supervisor Linda Arcularius and Kings County Supervisor Jon Rachford also support AB 2840.

AB 2840 requires that before changes can be made to the way auto rates are calculated, a statewide study must be done to ensure the changes will result in rates that are fair and are based on the actual costs so that certain drivers are not forced to subsidize others.

The bill is in response to regulations proposed by Insurance Commissioner John Garamendi in December 2005. Under Garamendi’s proposal, big city drivers would get arbitrary rate cuts, but other drivers would have to pay higher rates to subsidize those cuts, the group said. Under the proposed regulations, insurance companies would be forced to charge rates that are no longer substantially related to the risk of loss as required by current law, and instead give drivers arbitrary discounts based solely on where they live.

Two separate studies, including one commissioned by the Department of Insurance, concluded that implementing the regulations as currently proposed could result in rate increases as high as 30 percent for some drivers, mostly in the rural and suburban areas, they said.

“Its just plain common sense that it costs more to insure drivers in more populated, more congested regions of the state,” said Assemblymember Benoit. “This legislation will simply assure that rates continue to be based on actual costs and risks to insure drivers–rather than on arbitrary or political desires to reduce rates for certain geographic regions of the state. The changes proposed by Commissioner Garamendi lead us down a slippery slope that I don’t think we should be traveling.”

“AB 2840 will help us ensure that some drivers aren’t unfairly forced to subsidize arbitrary auto insurance rate decreases for other drivers,” Canciamilla said. “It’s a straightforward bill which will verify that auto regulations are fair, non-discriminatory, and reflect the actual costs to provide insurance to every driver.”

“Preliminary analysis has indicated that this proposed regulation could result in significant auto insurance rate increases for millions of drivers throughout the state,” Parra said. “Clearly more study is needed before implementing this regulation to determine whether these rate increases are fair and justified.”

“While I appreciate the Commissioner’s desire to reduce rates in urban areas, I remain concerned the proposed changes could come at the expense of auto insurance ratepayers in rural and suburban areas, many of them with low incomes who have no alternative means of transportation,” Wold said. “I believe more study is needed so we can be sure there are no unfair negative impacts on drivers who can least afford it.”

The group claims that hundreds of local elected officials, chambers of commerce and businesses have written letters and spoken out in opposition to Garamendi’s proposed changes. They don’t think it’s fair for drivers in less populated regions of the state, where there is less likelihood of being in an accident or filing a claim, to pay more for auto insurance so that rates can be arbitrarily decreased for drivers in more populated, more congested areas of the state like Los Angeles, San Francisco, Beverly Hills and Santa Monica.

But the Commissioner has not given any indication he plans to abandon his plan. Nor has he articulated how it is possible to provide rate decreases for some drivers without shifting cost to other drivers.

If his regulations are put into law, millions of California drivers will be forced to pay significantly higher auto insurance premiums. Not because they are a greater risk, but to subsidize arbitrary rate decreases for drivers in large, metropolitan areas, they said.

“The Regional Council of Rural Counties continues to be concerned that residents in rural counties, many of whom are low income residents, will unfairly pay more for auto insurance to subsidize drivers in Los Angeles, San Francisco and other more populated areas of the state,””said Brent Harrington, president and CEO, Regional Council of Rural Counties. “It’s important that we prevent that unfairness from happening now and anytime in the future.”

“The purpose of AB 2840 is to safeguard consumers, particularly my constituents, from unfair auto insurance rates,” said INyo County Supervisor Arcularius. “When a person drives and [where he or she] keeps their vehicle will impact cost, plain and simple.”

Below is the text of AB 2840:

“The commissioner shall adopt no regulation that would change the weight given to any factor in determining automobile rates and premiums unless the department finds, based upon a study conducted by the California State Library, California Research Bureau, that the proposed change (1) will not result in rates and premiums which are arbitrary or unfairly discriminatory and (2) will result in rates and premiums which are substantially related to the risk of loss.”