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California Proposes Major Change on Auto Insurance Group Discounts

The California Department of Insurance on Monday released proposed regulations to reform how insurance companies offer group discounts based on occupation, education, and other arbitrary factors.

If adopted, this would be the first major change to the use of so-called “affinity group” discounts since California voters approved Proposition 103 in 1988, outlawing “redlining” and other major reforms in insurance.

The CDI drafted the new regulations after Insurance Commissioner Ricardo Lara ordered an investigation of group discounts.

A survey of insured vehicles reportedly found that one-fourth of Californians receive an affinity group premium reduction ranging from 1.5% to 25.9% depending on the insurer and group. The data shows that participation in group discount programs decreases with income and education level, with those living in ZIP Codes with average income above $49,000 more than twice as likely to receive discounts as those in ZIP Codes with average income of $22,500 or below, according to the CDI.

If adopted, the regulations would affect other Prop. 103-regulated lines of insurance where discounts may be offered, such as homeowners’ insurance.

A spokesperson for the American Property Casualty Insurance Association issued the following statement in response to be attributed to Mark Sektnan, vice president for state affairs for APCIA:

“Affinity group auto insurance discount programs have been used in California for 30 years and are offered to consumers in 48 states. Currently, millions of hard-working Californians save money on their auto insurance every month because of these programs. We need to closely review the new regulations proposed by the California Department of Insurance to determine how they will impact insured consumers. Our concern remains that these proposed changes will eliminate a discount auto insurance program used by millions of Californians struggling to keep up with the ever-increasing high cost of living in California.”

“The department’s historic investigation found that many insurance companies were effectively using group discounts to ‘cherry-pick’ members, giving some higher-income occupations a ‘fast pass’ while people of color and lower income motorists were left in the slow lane,” Lara said in a statement. “Thirty years ago, California voters banned ‘redlining’ practices that often meant the poorer you were, the more you paid for car insurance. We need a major course correction. These new rules of the road allow for group discounts as voters intended, but only if those groups are justified and non-discriminatory.”

Other key findings from the CDI investigation:

• Motorists in affinity groups are more likely to reside in ZIP Codes with a predominantly non-Hispanic white population.
• Three-quarters of motorists residing in underserved communities were not in an affinity group, compared to 57% for the rest of the state.
• Motorists in affinity groups are more likely to reside in ZIP Codes with a higher average educational attainment. Only 28% of those living in areas with the lowest number of college degrees receive discounts, compared to 56% for those where half or more have college degrees.

The CDI plans to hold a prenotice workshop on the proposed regulations on Jan. 28, 2020, at the Ronald Reagan State Building in Los Angeles to provide interested and affected stakeholders an opportunity to present comments.