BILL ANALYSIS
AB 2800
Page 1
Date of Hearing: April 30, 2008
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 2800 (Huffman) - As Amended: April 23, 2008
SUBJECT : Automobile Insurance: Mileage Rating Factor
SUMMARY : Authorizes insurers to apply a different rating
factor for insurer-verified miles driven annually for purposes
of automobile insurance rates. Specifically, this bill :
1)Finds and declares that reducing greenhouse gas emissions is
the policy of the state, that vehicle mileage is a significant
contributor to the greenhouse gas emissions produced, and that
offering insurance on a verified mileage basis creates an
incentive to drive less, assures more accurate insurance
rates, and provides an incentive to reduce emissions.
2)Provides that, in determining the "number of miles driven
annually" rating factor, insurers may apply different rating
factors for insurer-verified annual mileage and
applicant-estimated annual mileage. The insurer-verified
annual mileage rating factor shall be a voluntary
mileage-based insurance program.
3)Includes a declaration that the Legislature finds the bill to
further the purposes of Proposition 103 (the 1988 initiative
that established the regulatory structure that controls
automobile insurance rates).
EXISTING LAW :
1)Provides that insurance rates for most property-casualty
insurance, including automobile insurance, are regulated by
the Insurance Commissioner (IC) on a prior approval basis.
2)Specifies that rates for private passenger automobile
insurance shall be based on the insured's driving safety
record, the number of miles the insured drives annually, the
number of years driving experience of the insured, and such
other factors that the IC by regulation adopts that have a
substantial relationship to the risk of loss.
3)Establishes that the reduction of greenhouse gasses is the
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policy of the State of California.
FISCAL EFFECT : Undetermined costs to the Department of
Insurance to review and approve mileage-based automobile
insurance programs, if insurers take advantage of the bill's
authorization.
COMMENTS :
1)Background. Statutory law requires that the insurance rates
for private automobiles be based on the insured's driving
safety record, the number of miles which he or she drives
annually, the number of years of his or her driving
experience, and other factors that the IC may adopt by
regulation and that have a substantial relationship to the
risk of loss. (Section 1861.02 of the Insurance Code.) This
law was enacted by voter approval of Proposition 103 in 1988.
Current insurance regulations base automobile insurance
premiums for drivers on their projections of future mileage.
(Title 10, California Code of Regulations, Section 2632.1 et
seq.) These projections may prove to be accurate or
inaccurate. Although insurance companies may require some
supporting information, such as the customer's self report of
the number of miles driven to work, insurers do not have a
reliable means to verify the customer's mileage. Insurers may
request, but not require, mileage verification through
odometer readings based on recent vehicle service records
(e.g. oil change invoices) or mileage-tracking technology.
Mileage-based insurance programs vary auto insurance premiums
based on the number of verified miles driven. In one type of
a "mileage based program", customers pay a per-mile premium
for the total number of miles they drive. In another, they
receive a lower rate for verifying their mileage and driving
less than average or less than they drove the prior year. In
a third option, drivers receive a lower rate by agreeing to
verify their mileage through the use of vehicle service
records or data sources. In each of these programs, the
customer's driving record is still a major factor in
determining their insurance rate.
2)Purpose: The Author introduced this bill in an effort to
provide financial incentives for people to drive less. By
linking automobile insurance costs directly to each decision
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to drive the insured vehicle, the Author believes drivers will
make the decision to drive less, reduce greenhouse gas
emissions, and be rewarded with lower auto insurance costs.
3)Arguments in Support . The Natural Resources Defense Council
(NRDC) supports this bill and states that is consistent with
the recommendations of the AB 32 Economic and Technology
Advancement Advisory Committee Report to the Air Resources
Board since it will help California to reach global warming
emission reduction targets. The Environmental Defense Fund
points out that 28 percent of California's greenhouse gas
emissions come from passenger automobiles, and the great
increase in annual vehicle miles driven between 1990 and 2006
in California (31%) requires this type of legislation.
The Personal Insurance Federation of California (PIFC), which
supports the bill, states that the Department of Insurance's
(DOI) proposed "mileage verification regulations" do not allow
insurers the adequate tools to achieve true mileage
verification. PIFC notes that the proposed regulations allow
insurers to request certain information, but there is no
requirement for the insured to comply with the request. When
PIFC asked for mileage verification tools, the DOI refused
because it would be too "burdensome" on the customer. PIFC
further states that allowing drivers to submit estimates of
inaccurate mileage breaks the connection between conduct and
consequences. Further, it allows high-mileage drivers to
conceal their increased risk on the road and higher
consumption of fuel which produces higher levels of pollution
and inaccurate auto insurance rates.
4)Arguments in Opposition . The Consumer Watchdog (formerly the
Foundation for Taxpayer & Consumer Rights), which opposes this
bill, states that while the bill has a laudable goal of
attempting to create an incentive to drive less, it will not
serve that objective well because it improperly amends a
voter-approved initiative and will be rejected by the courts.
Consumer Watchdog states that this bill purports to amend one
of Proposition 103's mandatory rating factors by creating
multiple mileage factors and to do this outside of the IC's
regulations on mileage verification, which are the within the
purview of the IC.
Consumer Watchdog also states that the bill is illegal because
it would allow a system of unfair discrimination in which
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similarly situated insureds would pay different prices (i.e.,
contrary to Section 1861.05 of the Insurance Code). This
organization gives the following example: Consider two people
who drive 4,000 miles a year. One insured person participates
in the optional "green" plan of Company A, the other, also
insured by Company A, does not. If everything about them is
the same, the mere fact that one is not a participant in the
plan (perhaps it was never marketed to him or her) would have
that person paying a different premium under this bill. That
would be unfair discrimination.
5)Notice to Public . In light of the concerns expressed by the
opposition on the need to treat all customers equally, should
this bill be amended to expressly require a specific notice be
sent to each automobile insurance customer of an insurer that
chooses to participate in a mileage verified system?
REGISTERED SUPPORT / OPPOSITION :
Support
Alliance of Automobile Manufacturers (Alliance)
Environmental Defense Fund
Natural Resources Defense Council (NRDC)
Personal Insurance Federation of California (PIFC)
Planning and Conservation Leaague (PCL)
Toyota Motor Sales, U.S.A
Opposition
Consumer Action
Consumer Watchdog
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086