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CA Superior Court: insurers must follow new rules

Thursday, August 10, 2006

California Court Rules That Insurers Must Comply
With New State Regulations Benefiting Good Drivers

Court Denies Insurance Industry’s Attempt to Block Rules from Going Into Effect

SACRAMENTO, CA – A Sacramento Superior Court judge ruled today that insurers must begin complying with new state auto insurance regulations beginning August 17. The new regulations require insurers to begin basing auto insurance premiums primarily on policyholders’ driving records rather than their ZIP code, marital status, or other factors. Judge Loren E. McMaster denied a motion for preliminary injunction sought by insurers that would have blocked the new rules supported by consumer groups from going into effect.
“This is a landmark victory for consumers in the fight to end unfair ZIP-code profiling in auto insurance,” said Mark Savage, Senior Attorney for Consumers Union. “Today’s ruling means that insurers must change their current unfair auto insurance rates and begin implementing new rules that will help lower premiums for good and low-mileage drivers across California.”
In denying the insurance industry’s motion for a preliminary injunction in American Insurance Association et al v. John Garamendi, Judge McMaster concluded that insurers had not “met their burden to establish that they are likely to prevail on the merits of their claim that the [regulations] are invalid and illegal.”
Consumers Union and a coalition of consumer and civil rights organizations and three cities petitioned Insurance Commissioner John Garamendi in 2003 to make the rule change in keeping with Proposition 103. After conducting three years of field hearings on the issue, Garamendi concluded that ZIP code-based rates were unfair and adopted the new regulations. But insurance industry trade associations soon filed suit to block them.
In his ruling, Judge McMaster noted that there is substantial evidence to demonstrate that current auto premiums which are based primarily on a policyholder’s ZIP code often do not correlate to the risk and cost of insuring the driver. This practice results in arbitrary rates that violate the express requirement of Proposition 103, which mandated that ZIP code be given less weight than a policyholder’s driving safety record, annual miles driven, and years of driving experience.
McMaster also pointed out that the insurance industry’s claim that the new regulations are unfair has been undercut by the plan recently submitted by the Auto Club of Southern California, the state’s fourth largest insurer, to comply with the regulations. Under the Auto Club’s plan, 88 percent of policyholders will see their premiums go down an average of seven percent or $134. Since the Auto Club announced it would comply with the regulations ahead of schedule, USAA, the state’s ninth largest insurer, also has submitted its own plan to follow the regulations. USAA announced on Wednesday that 75 percent of its policyholders will save an average of eight percent or more than $100 annually.
“Two of California’s top ten auto insurance companies have shown that the state’s new auto regulations can be implemented fairly for drivers throughout the state,” said Savage. “Other insurers should follow suit instead of denying fairer insurance rates to their policyholders. While some insurers might continue to fight in court, today’s ruling means that all insurers must begin following the law now and give good drivers the break they deserve.”
The original petition in support of the new regulations was filed by Consumers Union, The Foundation for Taxpayer and Consumer Rights, the National Council of La Raza, the Southern Christian Leadership Conference of Greater Los Angeles, Spanish Speaking Citizens’ Foundation, Public Advocates, and City Attorney John Russo for Oakland, City Attorney Dennis Herrera for San Francisco, and City Attorney Rocky Delgadillo for Los Angeles.
Over the course of Commissioner Garamendi’s three years of public hearings, Consumers Union presented numerous reports documenting that ZIP-code based rates hurt good drivers throughout the state and that these rates are not cost-based. Consumers Union also found that insurers are charging good drivers in some small rural communities far more than good drivers living in some suburban and urban communities. Last December, Consumers Union issued a report that showed insurers charge good drivers living in California’s predominantly African American and Latino ZIP codes substantially more for automobile insurance than good drivers in predominantly white communities.
Commissioner Garamendi concluded that ZIP code-based rates were unfair and irrational and that insurers had manipulated their own data calculations to make the claim that rural drivers would see massive premium increases under the proposed regulations.
For more information on this issue, including research by Consumers Union showing how ZIP code-based rates hurt good drivers throughout the state, see: www.consumersunion.org/issues/insurance.html.
Mark Savage: 415-431-6747