Insurers Sue State Over New Auto Regulations
By Juliet Williams, Associated Press Writer - July 20, 2006SACRAMENTO (AP) _ Groups representing auto insurance companies filed a lawsuit against state Insurance Commissioner John Garamendi to block new rules that would base premiums on drivers' records instead of where they live.
Three insurance lobbying groups, the American Insurance Association, Association of California Insurance Companies and Personal Insurance Federation of California, filed suit Wednesday in Sacramento Superior Court, days after the state office of administrative law approved the regulations.
The groups said the companies they represent cover more than 90 percent of the state's insured drivers. The California Farm Bureau Federation also filed a lawsuit this week seeking to block the rules on behalf of its members who drive in rural and suburban neighborhoods.
Garamendi has pushed for the changes to comply with Proposition 103, an initiative passed by voters in 1988 that required rates be primarily tied to a driver's record, the number of years the driver has been licensed and the annual mileage he or she drives, rather than the ZIP code where a vehicle is registered.
Sam Sorich, president of the Association of California Insurance Companies, said voters agreed rates should be based "in a manner that fairly reflects the risk of loss."
"We believe that what the commissioner's proposed is completely contrary to what the voters proposed," Sorich said Thursday. "It's going to be up to the judge and the courts to decide this issue and really, it's the American way."
Consumer groups called the lawsuit "anti-consumer" and an effort by the insurance industry to avoid long-awaited reforms that will save good drivers money.
"With auto insurers coming off the most profitable year in a generation, customers should view with contempt any insurance company that joins this lawsuit," said Douglas Heller, executive director of the Foundation for Taxpayer and Consumer Rights.
Consumers Union, the publisher of Consumer Reports, had petitioned Garamendi to strike down regulations adopted by former Insurance Commissioner Chuck Quackenbush. Those regulations allowed insurers to continue using ZIP codes to determine rates despite the 1988 initiative.
Consumers Union said it found that basing premiums primarily on ZIP codes causes drivers with the same car, mileage and coverage to pay wildly fluctuating premiums _ as high as 87 percent different from one ZIP code to another in the San Francisco Bay area.
Insurance companies have argued that where a driver lives is an essential factor in assessing risks and costs. Five companies, including the state's largest insurer, State Farm Mutual Insurance Co., and its second largest, Farmers, spent more than $2 million in advertising this spring attacking Garamendi's attempt to impose the rules.
They claim the revised regulations would increase rates for more than 60 percent of California drivers and shift costs from drivers who live in big cities to those in rural and suburban areas.
Garamendi "used his authority not to carry out the intent of the law, but rather, apparently, to benefit some Californians over others, affecting millions of California drivers negatively," said David Snyder, vice president and assistant general counsel to the Washington, D.C.-based American Insurance Association.
"The lawsuits won't stop our efforts to make Proposition 103 a reality. The voters wanted it and that's what we're working to give them," said Norman Williams, a spokesman for the Department of Insurance.
In a letter posted on the department's Web site, Garamendi said, "There is absolutely no element of this proposal that calls for higher rates in rural areas to subsidize lower rates in urban areas."
The state's fourth-largest insurer announced last week that it would comply with the law voluntarily starting Dec. 1. The change by the Automobile Club of Southern California, combined with a separate 7 percent rate cut, is expected to reduce premiums for 88 percent of its policyholders and raise premiums for about 12 percent, the company said.
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