View this article online: https://www.insurancejournal.com/news/west/2006/04/27/67609.htm
California Assembly Bill 2840, co-authored by a bipartisan group of lawmakers including Assemblymembers John J. Benoit, R-Palm Desert; Joe Canciamilla, D-Pittsburg; Nicole Parra, D-Hanford; Doug LaMalfa, R-Richvale; and Lois Wolk, D-Davis, passed through its first committee, the Assembly Insurance Committee on a 7-to-2 bipartisan vote. The bill next goes to Assembly Appropriations. The bill, which requires a statewide study before any changes can be made to the way auto rates are calculated, will safeguard consumers from potential unfair and arbitrary rate increases and will ensure that auto rates continue to be based on the actual cost to insure each driver.
Voting in favor were: Assemblymembers Benoit, Russ Bogh, R-Beaumont, Betty Karnette, D-Long Beach, Sally Lieber, D-Mountain View, Dennis Mountjoy, R-Monrovia, Pedro Nava, D-Santa Barbara, and Juan Vargas, D-San Diego.
AB 2840 is supported by the Regional Council of Rural Counties, California Farm Bureau Federation, local elected officials, local chambers of commerce, taxpayer groups and the three insurance trade associations. The bill is in response to regulations proposed by Insurance Commissioner John Garamendi in December 2005 to change how insurers calculate auto premium rates.
“We are pleased to see members of the legislature recognize the need to protect drivers from arbitrary and unfair rate increases,” said Inyo County Supervisor Linda Arcularius who testified at yesterday’s hearing. “Hundreds of local elected officials throughout the state have repeatedly expressed concerns to Commissioner Garamendi regarding his misguided proposal, but he has chosen to ignore our concerns.”
AB 2840 would require that before any insurance commissioner can make changes to current rating factors there must first be a study to confirm that proposed changes will not lead to unfair or arbitrary rate increases for drivers.
Under Commissioner Garamendi’s proposal, certain drivers would receive arbitrary discounts based solely on where they live and insurance companies would be forced to charge rates that are no longer substantially related to the risk of loss (as required by current law). The Insurance Commissioner has repeatedly failed to articulate how it is possible to provide artificial rate decreases for some drivers without shifting cost to other drivers.
A study commissioned by the Department of Insurance demonstrated that implementing the current regulations could result in rate increases as high as 30 percent for some drivers, mostly in the rural and suburban areas. These rate increases will not come about because drivers in these areas are at greater risk but rather to subsidize arbitrary rate decreases for drivers in large, metropolitan areas.
Other AB 2840 backers were supportive of the bill’s progress:
“The Regional Council of Rural Counties applauds the passage of AB 2840 through the Assembly Insurance Committee because it will prevent unfair auto insurance rates for all California drivers. The bill will guarantee that automobile insurance rates remain based on the actual costs to insure each driver and prevent drivers in rural areas, many of whom are low income, from paying higher rates so that drivers in heavily congested, major cities can experience rate decreases.” said Brent Harrington, President and CEO, Regional Council of Rural Counties. “We continue to oppose Commissioner Garamendi’s proposal and believe its ill effects demonstrate the need for AB 2840 and the protections it will provide to drivers throughout California.”
“We strongly support AB 2840 and are pleased legislators see the need for this bill. Drivers in rural areas experience fewer accidents and therefore fewer claims, it only makes sense that their risk of getting into an accident should be the determining factor in how much they pay for auto insurance.” said California Farm Bureau Federation President Doug Mosebar. CFBF General Counsel Nancy McDonough agrees. “Under Insurance Commissioner Garamendi’s plan, this is not the case and drivers in rural areas will end up subsidizing a rate decrease for drivers in large, metropolitan areas. AB 2840 is simple – it will ensure that auto rates remain fair, non-discriminatory and related to the risk of loss,” she said.
“AB 2840 is so important because my constituents, and the majority of California drivers for that matter, need proof that their auto insurance rates will not increase under Commissioner Garamendi’s plan. A study by his own department found that rates will increase for drivers in my county by 36 percent and drivers in 51 other counties will experience rate increases as well,” stated Imperial County Supervisor Gary Wyatt. “Auto insurance rates now are based on actual costs and risks associated with providing insurance to each and every driver and that’s how it should be. AB 2840 will prevent any sort of unfair rate increases now and in years to come.”
Below is the text of AB 2840:
“The commissioner shall adopt no regulation that would change the weight given to any factor in determining automobile rates and premiums unless the department finds, based upon a study conducted by the California State Library, California Research Bureau, that the proposed change (1) will not result in rates and premiums which are arbitrary or unfairly discriminatory and (2) will result in rates and premiums which are substantially related to the risk of loss.”