Department of Insurance proposes major course correction on auto insurance group discounts
News: 2019 Press Release
LOS ANGELES, Calif. — The California Department of Insurance has released proposed regulations to reform how insurance companies offer group discounts based on occupation, education, and other arbitrary factors that historically have not been available to drivers in less-affluent and more diverse communities. 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 forms of discrimination in insurance.
The Department drafted the new regulations after Insurance Commissioner Ricardo Lara ordered the first-ever investigation of group discounts in the Department’s history. A survey of insured vehicles found that one-quarter 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. 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.
“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,” said Insurance Commissioner Ricardo Lara. “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 Department’s 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.
Proposition 103 permits groups to exist, but the Department’s proposed regulations would ensure that groups are offered equally to persons regardless of sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, primary language, immigration status, occupation, educational attainment, or income level. This proposed action would effectively ensure that all Californians have access to insurance group discounts as intended by Proposition 103.
The Department will hold a prenotice workshop on the proposed regulations on Tuesday, January 28, 2020, at the Ronald Reagan State Building in Los Angeles. The purpose of the prenotice workshop is to provide interested and affected stakeholders an opportunity to present comments regarding the proposed regulation changes and how rates and rating practices are used for group private passenger automobile insurance in California.
The Department of Insurance is responsible for the review and approval of automobile insurance premiums in the state to ensure they are fair and based on objective factors. Proposition 103 established the mandatory factors to be a driver’s driving safety record, miles driven, and years of driving experience, followed by optional factors that the Commissioner may permit for use in automobile insurance rating. This would be only the third major reform to the optional factors in the last decade.
In January 2019, the Department of Insurance prohibited the use of gender in private passenger automobile rate-setting in order to remove factors that are beyond a driver’s control.
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- Proposed regulations
- Prenotice workshop information
- Illustrative maps of affinity group participation for the Bay Area, Los Angeles, and San Diego
- If adopted, the regulations would affect other Proposition 103-regulated lines of insurance where discounts may be offered, such as homeowners’ insurance.
Led by Insurance Commissioner Ricardo Lara, the California Department of Insurance is the consumer protection agency for the nation's largest insurance marketplace and safeguards all of the state’s consumers by fairly regulating the insurance industry. Under the Commissioner’s direction, the Department uses its authority to protect Californians from insurance rates that are excessive, inadequate, or unfairly discriminatory, oversee insurer solvency to pay claims, set standards for agents and broker licensing, perform market conduct reviews of insurance companies, resolve consumer complaints, and investigate and prosecute insurance fraud. Consumers are urged to call 1-800-927-4357 with any questions or contact us at www.insurance.ca.gov via webform or online chat. Non-media inquiries should be directed to the Consumer Hotline at 800-927-4357. Teletypewriter (TTY), please dial 800-482-4833.