California auto insurers will have to comply with the state's new rating factor regulations while their legal challenge to the new rating regulations unfolds.
Last Wednesday, California's 3rd District Appellate Court declined to grant an injunction blocking the implementation of the regulations, which were set to take effect on Thursday.
"Once again the courts have ruled that insurers must comply with the will of voters who decided in 1988 that how safely you drive is more important than where you live in the pricing of auto insurance," said California Insurance Commissioner John Garamendi, who has argued that the prior system for determining rates ran counter to the intent of 1988′s Proposition 103.
Under the new regulations, auto insurers would not be allowed to give the location where a car is garaged greater weight in the rate setting process than the three state-mandated primary factors: the driver's record, the number of miles driven or the driver's experience.
The location of a car, like the driver's gender, age and marital status, is among 16 secondary factors the state allows to be considered in setting rates.
According to the prior system for determining rates, established under former Commissioner Chuck Quackenbush, none of the three primary factors could be outweighed by the average of the weight given to the 16 secondary factors, while the new system would bar insurers from giving more weight to any single secondary factor over any of the three primary factors.
Mr. Garamendi said Mr. Quackenbush had allowed a system that "permitted insurers to charge widely varying rates to similarly situated drivers who live across the street from one another, based solely on their respective ZIP codes."
Sam Sorich, president of the Association of California Insurance Companies said that although the courts declined to block the implementation of the new regulations, it has not given them its seal of approval.
"It's important to note that neither the Superior Court nor the Court of Appeal has ruled at all on the legality of the regulations," he said, adding that all this legal activity last week had been over the possible grant of a preliminary injunction.
On Aug. 10, Superior Court Judge Loren McMaster in Sacramento previously denied an application for a stay by ACIC, the Personal Insurance Federation of California and the American Insurance Association.
The overall legal challenge will continue, Mr. Sorich said last week. "We are still in court on the underlying issue–and the fundamental issue–of whether or not the regulations are valid and comply with the law," he said. "That remains to be litigated, but right now the regulations are being implemented."
(Additional reporting by Daniel Hays.)
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