Insurers File Lawsuit to Stop California Auto Insurance Regulations
July 20, 2006
Three insurance trade groups have filed a lawsuit seeking declaratory and injunctive relief to stop enforcement of California Department of Insurance (CDI) auto rating regulations, which they say are "unfair" and "will harm millions of California policyholders."
The lawsuit was filed by Kent Keller, managing partner with Barger & Wolen LLP, on behalf of the Association of California Insurance Companies (ACIC), the American Insurance Association (AIA) and the Personal Insurance Federation of California (PIFC). The three groups say they represent more than 90 percent of insured drivers in California.
The lawsuit is asking the Sacramento Superior Court to declare the regulations illegal and to grant a preliminary injunction. The associations claim the regulations force 60 percent of California drivers to pay more for auto insurance so other motorists can pay less.
A similar lawsuit was filed Tuesday by the California Farm Bureau Federation. The Farm Bureau is seeking to stop implementation of the regulations on behalf of its thousands of members who drive in rural and suburban neighborhoods, the groups said.
"CDI's regulations will significantly reduce where a car is garaged as a rating factor in developing auto insurance rates," said Sam Sorich, ACIC president. "As a result, insurers will be forced to charge unfair rates, compelling a majority of drivers – particularly in rural areas – to subsidize premiums paid by other Californians."
"Under these regulations, the state will be picking 'winners' and 'losers' and forcing insurers to charge arbitrary rates," said Rex Frazier, PIFC president. "The California Court of Appeal ruled in 2000 in a case known as Spanish Speaking vs. Low that the auto rating regulations used today are legal and comply with the requirements set forth in Proposition 103. These new regulations violate Proposition 103 because they would require insurers to charge rates that do not reflect the actual risk of loss."
"It is a shame that Insurance Commissioner John Garamendi ignored the concerns of millions of Californians. Decades of data prove that insurance costs differ among areas in California," said Ken Gibson, AIA vice president, western region. "Besides being actuarially sound, it is just common sense that a driver traveling 50 miles a day through congested downtown Los Angeles faces a far greater risk of having an accident than another motorist traveling the same distance on rural roads."
The Superior Court has 16 working days to conduct a hearing on the request for injunctive relief.
Source: ACIC, AIA, PIFC
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Name of sender: Jerry G.
Email of sender:
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I live on a farm and will most likely see my rates go up now. Garamendi is no different than the last corrupt insurance commission, Quakenbush, who was bought and paid for be the insurance carriers. Garamendi just talks a better game and hasn't been involved in the blatant pay to play that Quakenbush specialized in. Reminds me of Gray Davis!
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Fri Jun 2, 2006 5:44pm ET
By Ed Leefeldt
NEW YORK (Reuters) - Allstate Corp. agreed to modify its use of credit reports in setting rates for home and auto insurance on Friday, in what may be the first legal settlement of its kind.
The U.S.'s second largest personal lines carrier settled a federal class-action lawsuit in Texas brought by seven minorities who claimed Allstate's use of credit scoring discriminated against Hispanics and African-Americans.
Credit scoring is used by credit card and mortgage companies to decide how much money a lender can get. Insurers say it is also valuable in deciding whether a client is a good risk.
But nearly a quarter of all states, including California and Florida, have ordered insurers not to use or to limit credit scoring when issuing policies, because many minorities are low-income and have lower credit scores.
Robert Hunter, director of insurance at the Consumer Federation of America in Washington, D.C., said this was the first time an insurer agreed to change its policy in response to complaints by minorities.
"I was glad to hear it, and glad it happened in Texas," said Hunter, a former Texas insurance commissioner. "I hope now that other companies are also challenged on this."
Northbrook, Illinois-based Allstate said the settlement was preliminarily approved by U.S. District Judge Fred Biery.
The case was filed in 2001 in San Antonio, Texas, by seven people seeking to represent a nationwide class of African-Americans and Hispanics who bought auto and home insurance from Allstate.
They claimed they were discriminated against in violation of federal civil rights laws by being charged higher premiums based on Allstate's use of information in their credit reports.
Allstate denied discriminating, and the court made no ruling in the case.
Allstate will use a new publicly available scoring method. In states where it uses information from credit reports to rate policies, it will provide customers with the chance to have their insurance policies priced using the new method.
The insurer will also offer an appeals program for customers who experience an extraordinary event - such as a medical emergency - that hurts their credit. And it will offer education on how to improve credit scores.
Allstate's policy is more likely to meet the guidelines of states that have controls on how credit scoring can be used, said Hunter.
(additional reporting by Joseph Giannone)
Commentary:
Insurers use credit scoring because it works, much to people with damaged credit like myself!
I have not seen much higher rates, only insurance carriers asking for me to pay an annual premium (instead of financing). Credit scoring is very controversial and Allstate may have to raise rates to maintain it's profit margin. Get quotes from an independent broker that does not use carriers that have abused te credit scoring pricess.
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Name of sender: Gerald
Email of sender: Gerald32a@yahoo.com
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Allstate never helped me and just took my money. When I had an accident, they
fought my claim and settled for less. Crooks.
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