Calif. Approves USAA’s 8 Percent Auto Rate Reduction, Insurers Not Surprised

August 10, 2006

California Insurance Commissioner John Garamendi announced that he intends to approve an average 8 percent decrease in premium rates for policyholders of United Services Automobile Association (USAA), a move that the commissioner said coincides with the company’s decision to implement what he is calling the Garamendi Good Driver Auto Insurance Reforms.

Garamendi signed a giant check for $32.7 million to USAA Insurance auto policyholders at a news conference on a traffic island near the State Capitol yesterday. USAA has agreed to cut auto insurance rates for 318,000 California policyholders, who will see an average savings of $103 per year in annual premiums.

Garamendi said USAA’s decision is proof that his newly imposed auto rate regulations are beneficial for consumers while feasible for insurers. Sacramento’s Superior Court is scheduled to make a decision today regarding the insurance associations’ lawsuit to stop implementation of Garamendi’s new rules.

However, the Peronsal Insurance Federation of California said USAA’s filing was not a surprise and noted USAA would act differently than other insurers because it receives special treatment under Proposition 103.

“Unlike other insurers who must accept all good drivers, USAA is not required to ‘take all comers,'” said Rex Frazier, PIFC president. “They can refuse to write insurance for any good driver who is not connected to the military and, therefore, USAA does not have customers broadly spread across the state like other companies subject to Proposition 103. So, they are not affected by the Commissioner’s subsidy proposal like other insurers,” he said.

Garamendi’s reforms were approved by the state’s Office of Administrative Law last month. It requires that insurers give more weight to three mandatory factors noted in Proposition 103 — safety record, mileage driven and driving experience — over any other rating factors. Insurance associations, however, are fighting the rules, saying they are not based on actuarial data and will increase rates for drivers in rural areas, causing some drivers to subsidize others’ rates.

“USAA has done the right thing for its policyholders,” said Commissioner Garamendi. “Once again, a major company has chosen to break from the ranks of those companies who inexplicably continue to fight the will of Californians who approved Proposition 103. USAA’s customers, both rural and urban, will now reap the benefits.”

USAA is scheduled to file a new rating plan with the Department of Insurance to begin its adoption of the reforms and lower its rates Wednesday. The process will take roughly 45 days to complete.

“California is the latest in a series of states where we’ve been able to cut rates for our members,” said Joe Wehrle, president of USAA Property and Casualty Insurance Group. “Particularly in California, where drivers are paying over $3 for a gallon of gas, USAA’s auto rate cuts will come as good news.”

The Sacramento Superior Court is scheduled to hear arguments at 2 p.m. today on the insurance industry’s lawsuit requesting a temporary injunction to stop the August 14 deadline for all California insurers to submit new auto insurance rating plans to Insurance Commissioner Garamendi’s Department of Insurance.

Source: CDI, PIFC

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