Proposed Calif. regulations would stress driving record over zip code in pricing auto insurance

California Insurance Commissioner John Garamendi has unveiled enhancements to his proposed regulations that he said follow through on the promise voters sought when they approved Proposition 103 in 1988 -namely, that the price of auto insurance will depend more on how insureds drive than where they live.

He said the new enhancements will create a fairer system that complies with the intent of Prop. 103, while also considering the risk of loss for each given driver.

“I promised to make the spirit of Prop. 103 a reality,” said Garamendi. “Good drivers deserve to be judged more according to how they drive, and not be arbitrarily penalized because of where they live.”

The proposed regulations will require insurers to assign more importance to a person’s driving safety record, miles driven and driving experience than to any other factors when setting premium rates.

Current weighting

Until now, a system put into place by former Commissioner Chuck Quackenbush allowed insurers to give greater weight to non-mandatory factors, such as marital status, gender and, most frequently, zip code.

Garamendi has revised the regulations introduced last year. Specifically, the changes will permit insurers to tie certain types of coverage that have a greater relationship to the risk of loss to other types of coverage that bear less of a relationship. For example, while driving record may be less important in evaluating comprehensive coverage, it is very important in considering a driver’s collision coverage. Therefore the revisions permit comprehensive and collision coverage to be evaluated together.

Additionally, the changes provide insurers with the flexibility they will need to increase or decrease the importance of any rating factor in order to comply with the mandate of Proposition 103. Proponents say this flexibility will help insurers devise a system that allows rates to have the strongest relationship to the risk of loss possible, while at the same time ensuring that how one drives is a more important factor than where a driver lives.

The revised rules also give insurers two years to fully comply with the new standards, but require that they demonstrate significant progress toward meeting the goal during the first year after implementation of the regulations. This provision, as well as the relatively high level of profitability currently enjoyed by auto insurers, should allow implementation without considerable negative economic impact on policyholders regardless of where they live, according to Garamendi.

To view the current proposed regulations on the department’s Web site, visit: http://www20. insurance.ca.gov/epubacc/REG/82309.htm.