Group Insurance Plans Under Insurance Code Section 1861.12 (PPA)

Insurance Commissioner Ricardo Lara Pushes Auto Group Discounts For More Californians and Working Families

Commissioner Lara is proposing new regulations at the California Department of Insurance (Department) that would protect auto “affinity group” discounts currently offered to members of labor unions, fraternal associations, veterans groups, senior citizen organizations, and service organizations – while extending them to more lower-income and working Californians who currently do not qualify for these auto discounts today.

Organized groups such as teachers, firefighters, veterans, and seniors can continue to benefit from these auto insurance discounts, but auto insurance companies simply giving discounts based on a person’s educational level or occupation prevents many Californians from otherwise accessing these discounts.

Commissioner Lara’s core objective with this regulation is to preserve group discounts while making sure that safe drivers in all socio-economic classes and regardless of education level attained and occupational status benefit evenly from auto group discounts and more affordable car insurance.

Why Do We Need These Regulations?

The basic question here is: Do all Californians with comparably safe driving records benefit fairly and equitably from these insurance affinity groups, which offer more affordable car insurance? After two years of extensive fact-finding, data collection, and further analysis by the Department, the clear answer is “No”.

In September 2019, Commissioner Lara conducted a first-ever investigation of auto insurance rates for over 16 million insured vehicles in the state and found a disturbing fact: Today, rich, educated drivers receive more group discounts than less-wealthy, less formally educated safe drivers.

Evidence provided by insurance companies themselves now shows that participation in insurance company group discount programs decreases with income and education level, with those living in ZIP codes with an average per-capita income above $49,000 more than twice as likely to receive discounts than those living in ZIP codes with an average per-capita income of $22,500 or below. In some areas of Los Angeles, San Diego, and the Bay Area, participation in group discount programs in high-income ZIP codes was three to four times higher. 

Your zip code, education, or job should not determine whether you can obtain an auto group discount. View the Department’s maps of the Bay Area, Los Angeles, and San Diego areas to see how you are affected as well as our detailed analysis. 

California Consumer Organizations and Working Family Advocates Agree – New Regulations Are Necessary to Stop Discrimination on the Basis of Income, Education, or Occupation

For many years now, several auto insurance companies have taken advantage of a loophole in California’s automobile insurance rating rules created under Proposition 103, an initiative passed by California voters in 1988.

The current business model of the auto insurance companies who want the status quo is to give discounts to higher wage workers in order to sell them other products (home, life, etc.) while passing higher costs on to lower wage workers. 

The Department’s proposed regulations will make it harder for those companies to “cherry pick” just doctors, lawyers, and CEOs. 

Many organizations including labor unions have established legitimate auto group discount programs for their members — and will not be affected by this proposed regulation. 

In fact, thirteen different consumer organizations and working family advocates have written in strong support of Commissioner Lara’s proposed rules stating:

“Proposition 103 contains language that was designed to enable a group of consumers to negotiate discounts for their members. Labor unions, fraternal associations, veterans groups, senior citizen organizations, and service organizations are examples of groups that have properly utilized the intent of this language to negotiate discounts for millions of their members. 

Unfortunately, insurance companies have improperly used this Proposition 103 provision to create phony ‘groups’ that have no existence other than as a stratagem to cherry-pick for lower rates certain categories of consumers that insurers consider more desirable consumers. These industry-created ‘groups’ are based on occupation or level of education, and are offered to higher income persons.” (Letter to the California Assembly Committee on Insurance jointly signed by thirteen consumer organizations and working family advocates, March 9, 2020)

Click here to read the letter from 13 consumer organizations and working family advocates sent to the Assembly Insurance Committee. 

Consumer Reports and the Los Angeles Times also support changes to expand access to group discounts to lower-income people. Click here to read more.

Part of Nationwide Movement to End Unfair Discrimination in Auto Insurance Discounts

Because of unfair discrimination, other states are moving to ban the use of education and occupation in auto insurance today. Examples include:

• Michigan: Just passed a law in 2019 banning the use of occupation, education and gender (among other factors) when rating auto insurance.
• Vermont: Now prohibits the use of occupation and education as rating factors for auto insurance because these factors are deemed “unfairly discriminatory.”
• Massachusetts: Found the use of occupation and education as contrary to public policy and banned the use of these factors as auto rating factors by regulation.
• New York: Issued a regulation in 2018 prohibiting the use of occupation or education for auto rating unless the auto insurance company demonstrates these factors are truly predictive of (and don’t just correlate to) safe driving.
• New Jersey Senate: In January 2021, just passed Senate Bill S111 to prohibit the use of education, occupation, or employment status to calculate automobile insurance premiums. The bill is now pending in the State Assembly.

The Department Continues to Listen to Interested Stakeholders

The Department’s current draft regulations incorporate feedback received from consumer groups, members of the Legislature, the business community, membership organizations, and industry stakeholders to improve the group discount process by:

• Reducing barriers to the creation of new affinity groups for lower-income drivers. The draft regulations encourage the creation of new affinity groups among drivers who have traditionally been underserved by the affinity group discount process. There is now a grace period where insurers may offer a small affinity group discount to new groups that have never had an affinity group plan (while data on the group justifying the discount develops).
• Increasing incentives for the creation of new affinity groups for underserved communities. The draft regulations were improved by adding an incentive system whereby insurers who excel in writing policyholders from underserved socio-economic communities will receive a small increased allowance in their expense calculation to account for the added costs of making this effort.
• Reducing compliance burdens for insurance companies. Addressing feedback from certain member groups and insurance companies, the draft regulations no longer require insurers to file their affinity group agreement; require less frequent verification of affinity group membership; and, allow for periodic verification of all members of a particular affinity group at once, among other revisions.

For more information, please visit the Department’s webpage on this matter: Here.