New regulations on car insurance should be rejected
THERE soon may be new rules to determine auto insurance rates in California. The California Department of Insurance has developed rules, set to become effective in August, that would force insurance companies to manipulate data to generate artificially nigh premiums for some drivers that would subsidize artificially low premiums for other drivers. Called “fairer” by the CDI, this “zero sum” change is bad public policy, does nothing to address the Underlying cost escalators in the insurance system and should be rejected.
Under the current system, the CDI allows auto insurers to use 19 different rating factors to determine a driver’s premium. Insurers must first consider, and give the full data-supported weight for, a driver’s safety record, annual mileage and years of driving experience.
After giving full weight to these three “mandatory” rating factors, insurers can use any, none or all of the remaining sixteen “optional” rating factors. The CDI can add optional retting factors to the list if, and only if, they are “substantially related to the risk of loss.” The CDI has permitted optional rating factors such as gender (women are relatively less risky than men), student grades (better students are less risky), frequency of car accidents in an area (drivers in congested areas are more risky than in less congested areas) and severity of an accident in an area (the expense of auto body shops, medical treatment, fraud and lawsuits are higher in major urban cities). These last two rating factors are the so-called “territorial” factors and must be considered, and weighted, last if used by an auto insurer.
There is a long-standing public debate over which rating factors should be given the most weight: the mandatory or optional factors. The current insurance commissioner, along with a Santa Monica attorney, believes that the mandatory factors should be given more weight than territorial factors because they are “fairer” factors than where a driver lives. On the other side is a coalition of rural and suburban elected officials, along with farm and taxpayer-related groups, who support the current system which accounts for the obvious cost differences of providing insurance in rural, suburban and urban areas.