AAI Driven to Object Auto Proposals

Citing that the drafters of Prop. 103 clearly intended that persistency could not be used as a SOLE determinant, but could be used in combination with other rating factors, the Alliance of American Insurers has come out against proposals by the California Department of Insurance (CDI) to prohibit the use of “persistency” as a factor for setting auto insurance rates in the state.

Peter Gorman, vice president and regional manager of the Alliance’s Western Region, told Insurance Journal that a CDI hearing March 7 reviewed the use of prior auto coverage for personal auto underwriting.

“We submitted comments objecting to their proposed changes,” Gorman said. “We felt it would discourage consumers from shopping because the weight of the rating would be stacked against them going and looking for a new carrier. The thought was the proposed ban on the prohibition would be anti-competitive.”

According to Gorman, there appears to be a consensus from the industry that this was not well received. “At this point the Department hasn’t said whether they would or would not amend the proposed regulations. Typically, they [CDI] have 30 days after the record is closed to consider comments.”

Scott Edelen, Deputy Insurance Commissioner, Communications, noted that “CDI is reviewing all of the public comments received during the public input period, and during that review, it would be inappropriate to comment on specific portions of public input.”

When asked if the Alliance has seen any similar proposals in other states, Gorman, responded that this “Is unique to Prop. 103. The consumer groups are arguing that lack of prior auto insurance should not be allowed to be weighted into any auto rating factor. The Department is putting out several proposals that would change how carriers can rate for personal auto lines.” Prop. 103 has three mandatory rating factors—driving record, years of driving experience, and miles driven. There are then 15 other factors that may be used.

Gorman pointed out that in general, the commissioner views himself as kind of an arbitrator on issues, and he allows his staff to propose these, listen to the arguments, then makes his decisions.

How will these proposals impact agents?

According to Gorman, “These proposals would take away some of the variants in the rates that they can offer, the discounts that they can offer. It would level the rates so that shopping around would not really get you a better deal. All rates would be much closer together than they are now. I think if this persistency does discourage consumers from leaving their current carrier because it will be more expensive to go to the new one, it would discourage shopping around and I don’t think the agents would like that.”

While the state’s auto insurance market has not reached a crisis level like New Jersey, Gorman did offer some views on its overall health.

“The losses are going up, but not as dramatically as some other states,” Gorman commented. “It is a cyclical business and every seven to 10 years our losses exceed our income and then our income exceeds our losses. Right now, the lines are flattening and the losses are going up and the ability to raise rates is restricted or hindered by Prop. 103.”

Topics Auto