California homeowners insurance regulations proposed by Insurance Commissioner John Garamendi would result in higher premiums for many residents, insurance industry trade groups testified yesterday.

The Personal Insurance Federation of California and the American Insurance Association also said at a California Insurance Department hearing yesterday in San Francisco that the measures would force insurers to charge unfair homeowners rates and cause subsidies among policyholders.

Gene Livingston of Greenberg Traurig, LLP, testifying on behalf of PIFC and AIA, asserted the commissioner proposed similar regulations twice in the past and both times the courts struck him down.

“If he pursues these equally unlawful regulations, he's facing a third strike,” he said.

The proposed regulations, according to their text, are aimed at prohibiting rate increases without corresponding increases in loss experience “because such increases are not actuarially sound and are unfairly discriminatory.”

In addition, the regulations provide guidance on how loss data can be used in levying rate surcharges. For example, insurers would be prohibited from calculating surcharges “from losses due to natural phenomena or a third-party act committed by someone who is not a resident of the insured dwelling.”

Rex Frazier, PIFC's vice president and general counsel, said the proposal would require lower-risk customers to subsidize rates artificially, while a second portion would result in insurers avoiding higher-risk customers.

“This proposal amounts to the State of California picking winners and losers without even bothering to understand the effects upon the public,” he said.

“The Department of Insurance reviews these filings and approves rates based on past claims. If insurers are prohibited from basing their rates on costs, homeowners with good claims history will be deprived of the lower premiums they deserve,” noted Janine Gibford, AIA assistant vice president.

The proposed regulations for homeowners insurance resemble Commissioner Garamendi's efforts on auto insurance, the industry representatives said.

“In both cases, the commissioner is proposing systems that would result in arbitrary rates, mandating that rates be based upon the commissioner's preference of who should pay more or less, instead of fairly rating on what actual claims experience predicts will be a future claimant,” said Mr. Frazier.

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Industry Slams Garamendi Home Reg Rules

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