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California considering new mileage verification rules

Insurance brokers and agents could be required to verify odometer readings for new and renewal automobile insurance policies under amendments the California Department of Insurance (CDI) has proposed to its personal automobile rating factor regulations.

CDI has proposed amending Section 2632.5 of the California Code of Regulations to specify how insurers may and may not verify estimated annual mileage. Under Prop. 103, annual mileage is second in importance only to driving safety record in the weight insurers may assign in establishing personal auto insurance rates.

Under the CDI proposal, new applicants would be required to estimate their annual mileage and provide insurers “reasonable information necessary to support the estimate.”

Reasonable information is defined as “the location of the applicant’s workplace if the vehicle is used for commute purposes, the number of days per week the vehicle is used for commuting, an estimate of the number of miles driven for pleasure or other purposes, the approximate total number of miles driven the previous year, and the reason for any differences in the estimate for the upcoming year and the miles driven the previous year.”

Insurers would be permitted to require applicants to provide their current odometer reading, or to obtain the last odometer reading from the California Department of Motor Vehicles smog certification program.

However, “if an insurer markets using an independent or captive agency system, and an applicant meets with an agent in connection with the insurance application, the insurer may require the agent to verify the odometer reading of the vehicle to be insured under the policy, and the applicant shall allow the agent to do so,” the proposed regulation says.

If an applicant fails to provide or permit an agent to verify the odometer reading, if the insurer has no other means reasonably to estimate annual mileage, and if the insurer has clearly indicated the consequences of not providing that information, the insurer may issue the policy using a “default annual mileage figure, which has been filed with and approved by the Commissioner.”

Insurers would be prohibited from changing the mileage estimate provided without notifying the applicant of that change and providing at least 15 days from mailing that notice, to challenge the insurer’s determination under the proposed regulations. Insurers could request, but not require, an applicant to provide prior documentation, such as prior vehicle maintenance records or prior smog certificates. Insurers could not require an applicant to provide information from a prior insurer to confirm mileage estimated or driven.

“We feel that the Department of Insurance is again proposing a solution in search of a problem. We don’t see any necessity for these regulations whatsoever, and we’re really concerned that the potential revisions could actually have the effect of harming consumers,” said Steve Young, senior vice president and general counsel for Insurance Brokers and Agents of the West. “Frankly, insurance companies have an awful lot of flexibility in determining how to apply this [mileage] factor. That flexibility helps consumers To the extent that these regulations impose greater rigidity into the process, I think it’s possible many consumers could see their prices increase solely for that reason.”

Young added that having agents and brokers verify consumers mileage, as noted in the proposed regulations, does not make sense with how the industry typically transacts business – via the phone or Internet.

The Alliance of Insurance Agents and Brokers also opposed the regulations. “We have just as much interest as our policyholders to make sure odometer rates are accurate,” said Ken Nigohosian, executive director for the Alliance in its “Alliance Alert.” “These regulations are too cumbersome, and we will be working with other industry groups to find alternative solutions.”

A public hearing on the proposed regulatiosn was scheduled for June 13, at CDI’s offices in San Francisco.

Topics California Carriers Auto Agencies Legislation