Judge Stymies California Auto Insurers

By William Murphy

Published on August 11, 2006

The American Insurance Association, the Personal Insurance Federation of California, and the Association of California Insurance Companies sued in July for an injunction against new regulations written by Insurance Commissioner John Garamendi that require insurance companies to base their auto insurance rates primarily on a driver’s annual mileage, the driver’s age and safety record, and the number of years of driving experience the driver has.

The new rules are based on the 1988 voter-approved insurance-reform initiative Proposition 103. The initiative was passed in response to regulations put in place in 1996 by then–Insurance Commissioner Chuck Quackenbush. Those regulations allowed insurers to use zip codes as the primary determinant in setting rates.

Critics have long complained that the Quackenbush regulations allowed insurance companies to set rates arbitrarily, and that drivers with good records in some areas were paying more for coverage than drivers with poor records who lived in areas favored by insurance companies. A UCLA study confirmed that policyholders in low-income and minority neighborhoods paid rates that were far higher than necessary to compensate for any known risk.

Judge McMaster said insurance companies have until August 17 to file new rate plans with the state Department of Insurance.

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