From today’s Fresno Bee:
The California Farm Bureau Federation is rallying its members to oppose new auto insurance rate proposals, saying drivers in rural communities will be unfairly targeted with higher rate increases.[...]
However, Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights, which supports Garamendi’s proposal, said the study on which the bureau has based its position isn’t conclusive and that even some insurers have taken issue with its findings.
“It’s just not true what they [farm bureau] are saying,” Heller said. “The analysis doesn’t break out what bad drivers and people who drive three times as much as the average driver would pay under the system.”
I’ve got to get me a copy of that study. However, the principle the Farm Bureau is concerned about is easy to explain.
Let’s say that a state is made up of 1000 urban drivers who pay $2500 for their car insurance, and 200 rural drivers who pay $500 for their car insurance.
If insurers are no longer allowed to differentiate rates via urban/rural status, if insurance is mandatory, if profit and expense provisions are uniform, if….(well you get the idea)… then you’ll end up with 1200 people who are paying $2167 for their car insurance.
The 1000 urban drivers are going to be pretty happy about their 13% rate cut. However, the rural drivers will probably be pretty upset about the 333% rate hike.
That’s it in a nutshell.
Yes, there are mitigating factors. For example, rural drivers who are insured with an insurer who doesn’t do urban business will fare better than those insured by Big City Insurance Inc. Insurers who are more concentrated in high-loss areas will be at a competitive disadvantage versus those who aren’t. And I need to go look at the study which probably explains how driving record will matter more (we’ll have to ignore just how many folks have clean MVRs) as will amount driven and usage (which is an often lied-about rating variable that is virtually impossible to verify without mounting black boxes in insureds’ cars)…. but I do find it difficult to believe that the farm bureau’s concerns aren’t valid.
I’m sure I’ll have more to say if/when I get a chance to look at the study referenced in the article.