Insurance Proposal Violates Consumer Protection Law

SB 841 will add a surcharge to consumers who cannot afford to maintain continuous auto insurance coverage. Under this insurance industry proposal, insurers will be allowed to provide a “discount” to drivers who switch from another company to theirs; that discount for shopping will be paid for through a surcharge on those who have not been previously insured or, for any reason, dropped their coverage for more than three months. If consumers who had prior insurance coverage get a discount, previously uninsured drivers pay more. This proposal was vetoed in 2002 by Governor Davis.

1. SB 841 creates a barrier for poor people trying to purchase insurance The industry’s proposal would allow insurers to charge previously uninsured motorists more for auto insurance. The basic premise of insurance ratemaking is that it must be a zero sum game. Therefore, in order to offer a discount to previously insured drivers, the company must surcharge previously uninsured motorists. Under SB 841, even if all other characteristics were equal, a company could charge a higher premium to a new customer who was previously uninsured or temporarily dropped coverage and give a discount to another new customer who was previously insured with another company.
2. SB 841 will keep Uninsured Motorist premiums unnecessarily high for all drivers By allowing insurers to surcharge low-income motorists seeking insurance, fewer will actually be able to purchase the policy. This leaves more people uninsured and keeps premiums paid for uninsured motorist coverage high, negating the alleged discount.
3. SB 841 will impose surcharges on citizens who have a lapse in coverage even if they were not driving.
   
   When people lose their job or out of work due to a debilitating injury they may not be able to afford continued auto insurance and they may not even be driving. Under this bill they will be charged a higher premium when they need to and/or can afford to purchase insurance again.

4. State law prohibits rate discrimination against previously uninsured motorists Discriminating against drivers who did not previously have insurance is banned by voter-approved Proposition 103. State law requires that:

   “the absence of prior automobile insurance coverage, in and of itself, shall not be a criterion for determining eligibility for a Good Driver Discount policy, or generally for automobile rates, premiums or insurability.” [Insurance Code Section 1861.02 (c)]

   Proposition 103 requires that any amendment to the law “further its purposes.” Using this section, consumer advocates have twice challenged insurance-industry sponsored legislation as invalid under Proposition 103, each time successfully.

5. The Department of Insurance recently issued regulations to stop insurers from illegally surcharging the poor who had no prior insurance. The Department of Insurance has determined that this proposal is illegal and has issued regulations clarifying that. The insurance industry wants the legislature to overturn the Department of Insurance and Proposition 103 protections that are in place. Additionally, in 1997, a San Francisco Superior Court ruled that then-Commissioner Quackenbush must stop companies from discriminating against the previously uninsured.