California Presents Rules To Prevent Auto Insurance Discrimination

Millions of California drivers will see auto insurance savings with the adoption of regulations presented at a California Department of Insurance workshop this week, according to Consumer Federation of America (CFA) and Consumer Federation of California (CFC).

California Insurance Commissioner Ricardo Lara’s rules will require insurers to make their group discount programs more equitable and eliminate the practice adopted by some insurers of charging higher premiums to blue-collar and unemployed drivers, even if they have perfect driving records, the groups said in a news release.

“Group insurance discounts are meant to empower consumers who purchase their car insurance through a group to which they belong, but some insurance companies have deformed this idea into discriminating against safe drivers in lower-wage occupations,” said J. Robert Hunter, CFA Insurance Director and former Texas Insurance Commissioner. “The draft regulations will stop insurance companies from punishing Californians who don’t have the right job title, while strengthening the ability of consumers to band together and get cheaper coverage.”

The regulations address a loophole that insurance companies have carved out, in which some insurers have created phony occupation-based groups in order to offer lower-priced coverage to white-collar professionals while charging higher rates to Californians with blue-collar jobs or who are unemployed.

The rules also allow consumers to get group discounts through their organizations and require that insurers make those group discounts more accessible to lower-income communities of color, who face higher rates due to discriminatory occupation-based insurance pricing.

“Blue-collar Californians, including millions of essential workers, factory workers, farmworkers, and service employees, have been forced to subsidize premiums that insurance companies offer to the white-collar professionals whose business they prefer,” said Robert Herrell, Executive Director of the Consumer Federation of California. “The Commissioner’s plan will end the insurance industry’s discrimination against California’s wage workers and increase unions’ and other community organizations’ access to group auto insurance discounts.”

GEICO, one of California’s largest auto insurers, currently uses drivers’ job titles to create different coverage levels. Through a simple premium quote test at Geico.com, CFC and CFA found that a standard auto insurance policy sold to a driver with a perfect driving record will cost about 20% more – $276 more per year in one Los Angeles area test – if the driver is a firefighter, licensed vocational nurse, factory worker, or unemployed, than if their occupation is “investment banker” or “hospital administrator,” even if everything else about the driver is exactly the same.

Other major insurers such as Progressive and Mercury also impose job-title penalties by abusing the premium setting rules that will be reformed under Commissioner Lara’s draft regulations.

Under the draft rules, insurance companies will no longer be able to charge a higher rate to a safe driver just because they do not have a white-collar job. Importantly though, the proposed rules preserve the ability of groups like teachers and law enforcement associations, senior organizations, and labor unions to secure group car insurance discounts.

The rules also incentivize insurance companies to make their group discount programs more widely available to groups with members who live in traditionally underserved communities of California. This will expand access to group discounts for the first time since the group discount law was enacted in 1988.

“Insurance companies want to protect their ability to discriminate against lower-income Californians, and they will lobby hard to preserve an unfairness in the market that suits their bottom line,” said Herrell. “In fact, working Californians urgently need the reforms proposed by the Insurance Commissioner to take effect as soon as possible to open up group discounts to more safe drivers and end the unfair and discriminatory penalties that make car insurance costlier to California’s economically vulnerable consumers.”