Consumer Groups Target Calif. ‘Affinity’ Car Insurance Discounts

California trafficCalifornia’s insurance regulatory office is considering a petition to stop car insurance discounts that consumer advocacy groups say illegally discriminate in favor of “elite organizations.”

Led by the Los Angeles-based Consumer Watchdog, more than a dozen consumer advocacy groups said in a petition that the so-called “affinity group” discounts that insurers offer are discriminatory markdowns on California car insurance premiums for specialized associations.

Arguments Hinge on Insurance Code for ‘Group Insurance Plans’

The practice, according to the petition, is “a direct violation” of Proposition 103, a seminal insurance law passed in 1988 that, among other things, barred insurers from using non-driving factors like credit background when pricing policies.

The California Department of Insurance (CDI) said that such discounts are permitted under an insurance statute that regulates “group insurance plans” and allows insurers to issue coverage rating plans to a group “without restriction as to the purpose of the group, occupation or type of group.”

Such group rates aren’t “unfairly discriminatory, if they are averaged broadly among persons insured under the group plan,” according to the CDI.

“Contrary to Consumer Watchdog’s assertion, no group subsidizes any other groups,” the regulatory office said in a statement, adding that it will “consider Consumer Watchdog’s petition.”

In the petition, Consumer Watchdog said that the CDI’s interpretation of the “group insurance plan” regulation is too broad and accused the industry of creating an “unregulated patchwork” of groups that fit the ways in which insurers rate their preferred policyholders.

According to Consumer Watchdog, affinity discounts are awarded to members of “associations” that are “fabricated by insurance companies solely for the purpose of discriminating against unwanted motorists,” who in turn subsidize the lower premiums awarded to other motorists.

The petition said affinity groups include “lawyers, doctors, business professionals, college graduates, homeowners, and other ‘associations.’”

Mark Sektnan, president for the Association of California Insurance Companies, said in a statement that “certain affinity groups” receive lower premiums because their “loss experience … is better than for other policyholders.”

“It’s only fair that members of those groups should benefit from that with lower premiums,” he said. “In addition, offering coverage to a specific group like members of the military, firefighters, police or teachers saves marketing costs and those reduced costs are passed along to the consumer.”

Consumer Groups Want Rulemaking Proceeding

Consumer Watchdog said at a news conference that its petition asks the CDI to issue a moratorium on proposals to create and/or modify group programs until regulators craft another regulation for them.

At the Wednesday event, Sascha Alexander, an actress/educator, called affinity discounts “basic discrimination.”

“It doesn’t make sense to me, as a consumer, that my rate would be influenced by something that has nothing to do with … my driving history,” she said.

Ashley McCormick, an Auto Club policyholder and Los Angeles resident, said in a statement that living in the city “means I have to own a car.”

“But I don’t think it makes sense that I should pay a higher price for insurance just because I went to film school and not law school or medical school,” she said.

Last fall, Consumer Watchdog brought a hearing before a state administrative law judge about affinity discounts at Allstate. CDI said that Dave Jones, the state’s insurance commissioner, reduced a proposed rate hike for Allstate policyholders as part of a settlement resulting from that hearing.

Consumer Watchdog said in its petition that a “rulemaking proceeding” is needed beyond that case involving Allstate.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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