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Insurers Continue to Charge Previously Uninsured Motorists More In Violation of Proposition 103Approximately one in four California motorists are uninsured. Of course, the uninsured motorist rate ranges much higher in low-income and minority communities--up to 51% in underserved communities overall and up to 75-80% in certain low-income Los Angeles County and other communities.
Unaffordability--sometimes due to insurers' large, unlawful surcharges for previously uninsured motorists seeking to comply with the law, sometimes due to insurers' generally excessive and unfairly discriminatory rates--remains a key reason why such a high number of drivers are uninsured. According to a 1999 CDI study, the majority of uninsured motorists surveyed indicated that they would probably purchase insurance if premiums were even 10% lower than the current level--the equivalent of many uninsured-motorist surcharges alone. The uninsured motorist rate is closely linked to higher premiums in that "each $22 increase in annual premiums increases the average uninsured rate by 1 percent."
Furthermore, the over 20 million drivers who are currently insured are also negatively impacted by the inability of uninsured motorists to obtain affordable coverage.
Proposition 103 Prohibits Rate Discrimination Against Previously Uninsured Motorists
Proposition 103 as approved by California voters in 1988 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.
The public policy behind this mandatory law is that consumers entering the insurance market should not be penalized for being previously uninsured, especially in light of industry practices such as red-lining and territorial rating, which render insurance unaffordable and unavailable for many Californians.
Insurers Continue to Evade Law
Since the passage of Proposition 103, insurance companies have formulated auto insurance rating rules that, under the guise of a variety of labels, have the same result: to impose higher premiums on previously uninsured motorists, in violation of Ins. Code §1861.02(c). Furthermore, there appears to be a lack of consistency in the CDI's approval of the various surcharges (sometimes called "discounts") used by companies in the determination of premiums.
In 1997, consumer groups challenged violations of §1861.02(c) in lawsuits against insurers that were implementing a surcharge on drivers who could not verify compliance with the state's mandatory insurance law. As a result, the San Francisco Superior Court ordered the Commissioner to stop approving the use of such rating factors requiring proof of compliance with the mandatory insurance laws (prior insurance coverage), because they did not comply with Ins. Code § 1861.02(a)(4).
Now, in a new twist, insurers are using one of the approved rating factors called "persistency" (which has never been defined by law) again to charge previously uninsured motorists more. Typically, insurers will give a "discount" to drivers who can show that they have been with the same insurance company for the previous 1-3 years. What this means is that, again, any driver who has not had insurance in the previous year will end up paying higher rates, all other characteristics being equal.
Particularly in light of the recent flurry of requested rate increases, and the expectation of further applications, what these statistics show is that even a 10-15% surcharge on previously uninsured motorists will hugely impact the number of drivers who are unable to afford auto insurance. The uninsured are in a perpetual "Catch-22" situation. If companies are offering so-called "initial persistency" discounts to those that can show proof of insurance with a certain company for the previous year, then those who have never had insurance will always be charged more than other drivers, all other characteristics being equal. These higher initial rates will in many cases be enough to prevent the uninsured from being able to afford a policy. The door to insured status remains closed to these drivers.
Moreover, many insured motorists are further forced to pay for the insurance companies' unlawful violation of Proposition 103 through increased premiums, including more insurer profits, for uninsured motorist coverage. Insurers claim that because more drivers are forced to be uninsured, the likelihood of being in an accident with an uninsured motorist increases, thus justifying higher premiums to cover losses plus profit. The California Senate estimated this cost, of uninsured drivers to insured drivers, at $1 billion to $2.3 billion annually.
Consumer Groups Petition Department of Insurance for Rulemaking Proceeding
In May of 2001, the Foundation for Taxpayer and Consumer Rights (FTCR) petitioned Insurance Commissioner Harry Low and the California Department of Insurance (CDI) for a rulemaking proceeding to address the abuses occurring on an industry-wide basis against motorists with no prior insurance. That petition was granted by Commissioner Low on June 4, 2001 and a public hearing will soon be noticed by the CDI to address "the use of 'persistency discounts' by insurers" which the Commissioner agrees "has the potential to conflict with the provisions of Ins. Code §1861.02(c)." In a separate filing, FTCR, Consumers Union and the Southern Christian Leadership Conference of Greater Los Angeles jointly requested that any insurance company proposal pending before the CDI to use prior insurance as a criterion to charge motorists higher premiums be denied until the adoption of final regulations on uninsured motorist surcharges by the Commissioner. Alternatively, the groups requested that insurers be put on notice that they may have to refund excess premiums charged to millions of uninsured motorists facing unlawful surcharges upon the Commissioner's final adoption of regulations.
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