Transcript Download Handout 1

Why is ACIC opposed
to the regulations?
• Advocates for our customers
• Basic fairness
• Market disruption
Public Opinion Torn
• My premium should be based on how I
drive, not where I live.
• I live in a less congested area. I
shouldn’t have to pay more to
subsidize urban drivers.
The question is ultimately
a legal issue.
• What power does Proposition 103 give
to the insurance commissioner?
• What does Proposition 103 mean?
Proposition 103
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Rates shall be determined by the following
factors in decreasing order of importance:
driving record
miles driven
years of driving experience
factors adopted by the commissioner that
have a substantial relationship to the
risk of loss
Not So Clear Meaning
“While (the Proposition’s provision
on auto rating factors) is reasonably
clear from statutory language,
precisely what it means is not.”
Spanish Speaking Citizens’
Foundation v. Low
No “Plain Meaning”
“(There) is strong circumstantial
evidence of problems that cannot
be resolved by any statutory
‘plain meaning.’
Spanish Speaking Citizens’
What Is Proposition
103’s Purpose?
“The only general standard which
bears clearly on the issue of factor
weight ordering is the Proposition’s
stated aim of ‘protecting consumers
from arbitrary insurance rates
and practices’.”
Spanish Speaking Citizens’
What Are Arbitrary Rates?
Rates are arbitrary when they
do not have a substantial
relationship to the risk of loss.
Inherently Arbitrary
“Pumping and tempering therefore
run counter to (the) requirement
that rating factors be substantially
related to the risk of loss.”
Spanish Speaking Citizens’
History of the Regulations
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Workshops in 2004 – 2005
Hearing on Feb. 24, 2006
Regulations revised on April 26, 2006
Regolutions adopted on July 14, 2006
Insurers file class plans and rates on
August 17, 2006
Lawsuit on the Regulations
Basic Arguments:
• the regulations violate Prop. 103
because they result in arbitrary rates
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April 26th revision failed to comply
with procedures
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No authority to order rate filings
History of Lawsuit
• Lawsuit filed on July 18, 2006
• Preliminary injunction denied
August 10, 2006
• Motion for summary judgment
granted Feb. 15, 2007
Future Litigation
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Appeal of ruling on summary
judgment
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An “as applied” challenge
Where’s the crisis?
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Two – year phase-in
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15% compliance
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Rate cuts mask disloction
Market Changes Could
Be Looming
“Churn is underway. We’re seeing
more phone calls than we’ve seen
in two years (in Northern California).
It’s a mass migration of auto
insurance customers.”
David Nelson, Alliance of
Insurance Agents and Brokers
How Can the Regulations
Be Improved?
• Actuarial Standards of Practice
• Improving the credibility of
mandatory factors
How can the Regulations
Be Improved?
Driving record
• ticket masking
• three years
• two-point offense
Mileage verification
• driver estimates
• default mileage