NAII: Auto Rating Discount Proposal Would Penalize Calif. Drivers

September 27, 2001

A proposed regulation that would allow only those drivers who renew coverage with their current insurer to receive discounts would stifle competition and unfairly penalize thousands of responsible motorists in the state.

“[Discounts] should not be confined only to policies that are renewed with the current insurer,” Sam Sorich, vice president and western regional manager of the National Association of Independent Insurers (NAII), wrote in letter to the California Department of Insurance. The Department is seeking public comment on proposed changes to the “persistency” rating factor for private passenger auto insurance.

“Limiting the persistency discount to renewals would permit insurers to give their current policyholders discounts which other insurers would be unable to match,” Sorich added. “Such a limitation would give a special advantage to insurers that now have substantial market shares, and the limitation would make it more difficult for consumers to find competing rates for automobile insurance. This is not a state of affairs which the Department of Insurance should foster by regulation.”

Actuarial evidence shows that drivers who maintain insurance for an extended period of time with an insurer have lower loss costs than drivers who allow their insurance to lapse. The “persistency” factor allows insurers to recognize this relationship by discounting the rates for drivers who maintain insurance for a significant period of time, Sorich said.

At issue is whether the “persistency” discount should continue to apply to drivers who have maintained insurance for a long duration, whether it is with one company or more, or whether the discount should just apply to drivers who continually remain insured by a single company.

“The restriction on persistency in the proposed revision should be rejected because it would deprive many drivers of the discount to which they are entitled,” Sorich wrote. “(The current regulation) makes sure that insurance rates are fair and encourages a competitive insurance market place since it enables insurers to consider persistency with any insurer-not just the current insurer.”

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