February 22, 2021 - LOS ANGELES, Calif. - Last week, Insurance Commissioner Ricardo Lara released revised draft regulations to expand drivers’ access to group discounts, california department of insurance logofollowing an extensive fact-finding examination of the adverse impact on lower-income policyholders and motorists of color. The revised draft regulations will extend discounts to previously underrepresented drivers in the first major reform of group discounts since voters approved them in 1988 with the passage of Proposition 103.

“Insurance companies must give greater access to auto insurance discounts for low-income drivers and people of color, regardless of their educational attainment,” said Insurance Commissioner Ricardo Lara. “Our nearly two-year examination has concluded that group discounts skew toward wealthier, more highly educated, and whiter areas of the state, so working families are often left out. With this pandemic continuing to dramatically widen the country’s income and equality gap, I am proposing these new rules that make car insurance discounts more equitable and available to the communities who can least afford to pay more for insurance. Whether you’re a doctor or a janitor with comparably safe driving records, you should have the same access to these discounts.”

The Department wrote the initial draft regulations after Commissioner Lara ordered the first-ever investigation of group discounts in the Department’s history along with an extensive data collection effort. While one-quarter of Californians receive a group premium reduction ranging from 1.5% to 25.9%, data collected by the Department shows that participation in group discount programs decreases with declining income and education levels. Those living in ZIP Codes with average per capita income above $49,000 are more than twice as likely to receive discounts as those in ZIP Codes with average per capita income of $22,500 or below. In some areas of Los Angeles, San Diego, and the Bay Area, participation in group discount programs in high-income ZIP Codes was three to four times higher.

Commissioner Lara proposed these revised draft regulations after holding a workshop with consumers, business and membership groups, and insurance companies on January 27, 2020. The revisions include:

  • Reducing barriers to the creation of new groups for lower-income drivers. The revised draft regulations require that insurance companies offering group discounts make sure they are available to drivers at different income levels who have similar driving experience.  
  • Increasing incentives for the creation of new groups for underserved communities. The revised draft regulations were improved by adding an incentive system whereby insurers who excel in writing policyholders from underserved socio-economic communities will receive a small increased allowance in their expense calculation to account for the added costs of making this effort.
  • Increasing public awareness of available groups. Currently insurance companies must provide a list of all available discounts to every new policyholder at every renewal. The revised draft regulations now require that all of an insurer’s available group plans must also be included in this list to help drivers avail themselves of discounts they may be entitled to but not aware they presently exist.

"Some insurers are taking advantage of a gap in Proposition 103 regulations to create phony, occupation-based "affinity groups" that force blue collar and lower-income Californians to subsidize wealthier motorists,” said Doug Heller, Insurance Consultant for Consumer Federation of California. “This needs to be fixed in order to stop insurers from unfairly charging higher auto insurance rates to lower-wage workers and unemployed Californians, even when those drivers have perfect records. Good drivers should get the best rates, regardless of their socio-economic status."

The Department will hold its second prenotice virtual workshop on the revised draft regulations on March 23. The purpose of the workshop is to provide interested and affected stakeholders another opportunity to comment on the proposed regulation changes and how rates and rating practices are used for group private passenger automobile insurance in California. If adopted, this would be the first major change to the use of group discounts since California voters approved Proposition 103 in 1988, outlawing “redlining” and other forms of discrimination in insurance.

Commissioner Lara is responsible for the review and approval of automobile insurance premiums in the state to ensure they are fair, not unfairly discriminatory, and based on objective factors. The Commissioner’s revised draft regulations would ensure that group discounts are offered equally to drivers with comparably safe records, and without arbitrary or unfairly discriminatory differences in pricing. Proposition 103 established the mandatory factors to be a driver’s driving safety record, miles driven, and years of driving experience, followed by optional factors that the Commissioner may permit for use in automobile insurance rating.