Bill To Kill Garamendi Auto Rule Progresses

A bill aimed at squelching the California insurance commissioner's proposal to restrict use of geographic data in setting driver's auto insurance rates was approved by a legislative panel yesterday.

State Assembly Insurance Committee members voted 7-2 for AB 2840, which would require a statewide study to be conducted before any changes are made to the process for calculating auto coverage premiums.

The measure, which was authored by Assemblyman John Benoit, R-Palm Desert, along with Joe Canciamilla, D-Pittsburg, Nicole Parra, D-Hanford, Doug LaMalfa, R-Richvale, and Lois Wolk, D-Davis, now moves to the Assembly Appropriations Committee.

Insurance trade organizations applauded the insurance committee action, saying the proposed departmental rule would be unfair to drivers.

AB 2840 was introduced after the proposed regulations were issued in December of 2005 by the state Department of Insurance that change the way rates are determined–requiring insurers to put more emphasis on certain factors such as driving record, years driving and annual mileage.

The rule would also reduce the importance of other factors, including the location where a car is garaged. Critics have argued that the changes would effectively force drivers in rural areas to pay more for coverage and subsidize the rates of those drivers in urban areas.

State Insurance Commissioner John Garamendi announced this week changes to the proposed rules designed to, in his words, “make the spirit of Prop. 103 a reality” by establishing that how a consumer drives will matter more in their auto insurance rates than where they live.

“Good drivers deserve to be judged more according to how they drive, and not be arbitrarily penalized because of where they live,” Mr. Garamendi said.

According to the department, the revisions to the proposed regulations will give insurers greater flexibility. Specifically, the changes would allow insurers to evaluate some types of coverage with a greater emphasis on risk of loss with other types that depend on it less for evaluating rates.

As an example, the department said insurers could evaluate collision coverage, where driving record is heavily emphasized, along with comprehensive coverage, where it is less of a factor.

Additionally, the department said insurers would be provided with more flexibility to increase or decrease the weight a factor is given in determining rates, creating a system allowing rates to have the strongest relationship to the risk of loss possible while ensuring that how a consumer drives is a more important factor than where they live.

Under the revisions, insurers would have two years to establish compliance with the new rules, although they would be required to “demonstrate significant progress toward meeting the goal during the first year after implementation of the regulations,” according to the department.

Janine Gibford, assistant vice president of the Western region for the American Insurance Association, said the bill sent out by the committee “is a common-sense solution that will prevent arbitrary and unfair rate increases for auto insurance policyholders.”

“If we move toward a system where rates are not based on actual loss costs, as the CDI has proposed, many low-risk drivers will pay higher premiums to subsidize high-risk drivers,” she added.

Brent Harrington, president and chief executive officer of the Regional Council of Rural Counties, said his group “applauds the passage of AB 2840 through the Assembly Insurance Committee because it will prevent unfair auto insurance rates for all California drivers.”

“The bill will guarantee that automobile insurance rates remain based on the actual costs to insure each driver and prevent drivers in rural areas, many of whom are low income, from paying higher rates so that drivers in heavily congested, major cities can experience rate decreases,” he said.