A second auto insurer has broken ranks with other carriers and agreed to go along with California Insurance Commissioner John Garamendi's controversial new rules for setting auto premiums.
The commissioner announced today that United Service Automobile Association had decided to implement regulations, that other insurers are battling in court, and limit the weight they give to a driver's geographic location as a rating factor.
Under the new rules which the commissioner has titled Good Driver Auto Insurance Reforms carriers are required to base premiums primarily on a driver's safety record, annual mileage and driving experience.
A coalition of consumer and civil rights groups and three cities petitioned for the rule change in 2003 citing the provisions of Proposition 103, the landmark 1988 insurance reform voter initiative.
As a result of USAA's action, the commissioner said he intends to approve an average 8 percent decrease in premium rates for the insurer's policyholders.
His announcement comes the day before tomorrow's scheduled arguments in Sacramento Superior Court over an insurance industry lawsuit seeking a temporary injunction to halt the Aug. 14 deadline for all California insurers to submit new auto insurance rating plans to the insurance department.
USAA, the state's 9th largest auto insurer, joins the Auto Club of Southern California in voluntarily agreeing to adopt the new rating system under the regulations, while also lowering rates for its policyholders.
Mr. Garamendi, a Democratic candidate for lieutenant governor, ballyhooed his announcement with a news conference on a traffic island near the State Capitol where he symbolically signed a giant check for $32.7 million to demonstrate the savings involved for USAA policyholders.
According to his announcement, USAA's decision means rates will be cut for 318,000 California policyholders who will see an average savings of $103 per year in annual premiums.
"Eighteen years ago, California voters passed Proposition 103 to reform the insurance system," said Commissioner Garamendi. "Today I am happy to announce that USAA Insurance customers will see their premiums drop even as USAA implements my reforms and moves toward realizing the promise of Prop. 103."
The commissioner's new regulations were approved by the state's Office of Administrative Law last month.
In a jab at insurers contesting the new rules, Mr. Garamendi announced, "Once again, a major company has chosen to break from the ranks of those companies who inexplicably continue to fight the will of Californians who approved Proposition 103. USAA's customers, both rural and urban, will now reap the benefits."
USAA is scheduled to file a new rating plan with the Department of Insurance to begin its adoption of the reforms and lower its rates. The process will take roughly 45 days to complete, according to the department.
Joe Wehrle, president of USAA Property and Casualty Insurance Group, said, "California is the latest in a series of states where we've been able to cut rates for our members."
Mr. Wehrle said that in California, "where drivers are paying over $3 for a gallon of gas, USAA's auto rate cuts will come as good news."
Mr. Garamendi said under regulation by his controversial predecessor Republican Chuck Quackenbush, insurers were allowed to give more importance to factors such as marital status, gender and most frequently, ZIP code. This system, he said, resulted in widely varying rates charged to identical drivers living across the street from one another, based solely on their respective ZIP codes.
According to the commissioner, risk of loss is appropriately represented in the new rating factors. He noted that insurers will be given two years to fully comply with the new standards, though they must show significant progress toward meeting the goal during the first year after implementation of the regulations.
The legal action being heard tomorrow was brought by the Association of California Insurance Companies, the American Insurance Association and the Personal Insurance Federation of California, whose members insure 90 percent of the state's drivers. The California Farm Bureau has also sued to block the rules.
In a statement announcing its action ACIC said the rules will force insurers to "charge unfair rates, compelling a majority of drivers–particularly in rural areas–to subsidize premiums paid by other Californians."
According to the insurers, the new regulations violate Proposition 103 because they would require insurers to charge rates that do not reflect the actual risk of loss.
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