The politics of California auto insurance sometimes seems like a bad soap opera. From IJ, quoting Garamendi:
On that afternoon I received a telephone call from Darry Sragow, a lawyer and political consultant whom I have known
for many years. Mr. Sragow said that we needed to talk about a very serious problem for me. As we spoke later that evening, he
informed me that he had been contacted by a female representative of either the insurance industry or an insurance company. She gave
him a message to deliver. That message gave me a choice – either delay implementation of the new regulations until the next
Commissioner takes office, or face a $2 million attack campaign in the days leading up to the June primary election, in which I am
running for Lieutenant Governor. It has now been reported that State Farm, Farmers, Allstate, Safeco, 21st Century Insurance, and
others are financing this campaign.
You know, I don’t always agree with the hardball tactics taken by some companies within the insurance industry, and this threat
(assuming it’s true) certainly counts among the slimiest I’ve encountered.
However, an interesting question is whether this is any more or less slimy than throwing statistics to the wind in an effort to
campaign for higher office…or the hypocrisy of complaining about such tactics when he himself was the beneficiary of similar
industry, um, generosity in his campaign to become Commissioner.
That does open the door to a new thought on the subject of a Federal insurance charter. If the industry gains the option of
light/minimal federal regulation, circumventing the antics in the arenas of the several states, does that mean that some of this
politicking can go away, leaving us to focus on actually engaging in the business of insurance?
After 30 years as a property casualty producer who actually does more than just peddle the product, it is pretty clear to me that the industry’s use of the term “cost-based” pricing of auto insurance within California is lip-service designed to influence the uninformed. Garamendi has said that auto rating is more a reflection of the marketing intentions of companies than it is a reflection of losses, expenses, and profit components. I increasingly agree. When a company decides to carry “multiple-line discounts” to the extreme that they include different discounts on a customer’s auto policies based upon the size of the death benefit he carries on his life insurance, I would suggest that it is very unlikely that such a credit reflects a reduced probability of an auto loss – or that auto operational expenses are somehow reduced by his purchase of life insurance, or any other, statistically unrelated, product. More and more insurance industry pundits and those who purport to study and understand the industry are exposing their lack of knowledge of how companies rate, and how their rating plans are constructed. While actuarys may have knowledge of the loss and expense portions of the auto rating equation, other factors are involved of which they seem ignorant. Only the equally uninformed can give any credibility to their conclusions. While Garamendi is likely to have timed this move for companies to become compliant with legislation passed over a decade ago with his political aspirations such timing has nothing to do with the need to make companies stop using voo-doo rating plans.
[...] I should point out that a prior post of mine on the subject generated a rather heated response from a producer who seems rather fed up with auto insurers: When a company decides to carry “multiple-line discounts” to the extreme that they include different discounts on a customer’s auto policies based upon the size of the death benefit he carries on his life insurance, I would suggest that it is very unlikely that such a credit reflects a reduced probability of an auto loss – or that auto operational expenses are somehow reduced by his purchase of life insurance, or any other, statistically unrelated, product. More and more insurance industry pundits and those who purport to study and understand the industry are exposing their lack of knowledge of how companies rate, and how their rating plans are constructed. While actuarys may have knowledge of the loss and expense portions of the auto rating equation, other factors are involved of which they seem ignorant. [...]