HONESTY CAN COST IN AUTO POLICIES

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Honesty can cost in auto policies
By Jim Sanders - jsanders@sacbee.com

Published 12:00 am PDT Monday, June 30, 2008
Story appeared in MAIN NEWS section, Page A1

Print | E-Mail | Comments (2) | |

Will Californians lie to save money?

Apparently.

New legislation takes aim at an honor system, of sorts, perhaps one of the few remaining in which millions of dollars are at stake.

The measure targets a process in which state law requires car insurance premiums to be based partly on motorists' estimates of how far they will drive each year.

Honesty can hurt – financially.

"I think it's ingrained, given the structure of the current system, to lie," said Michael Gunning of the Personal Insurance Federation of California, whose members write about half the state's auto insurance policies.

Assemblyman Jared Huffman, D-San Rafael, proposed the new measure, Assembly Bill 2800, to permit insurance companies to offer discounts to drivers who volunteer to have mileage verified.

NOTE: HUFFMAN CREATED THE ASSEMBLY BILL 2800.

Huffman said it makes no sense to reward dishonesty or lowballing, while offering no incentive to drive less.

"Ask yourself, what would most people do, given the opportunity to have a lower insurance rate by estimating lower miles than they actually drive?" Huffman said.

Sacramentans interviewed randomly Friday agreed.

"I think most people probably do skimp a little bit," said Derek Givens, 28.

"Hell, yeah, they do," said Jeremiah Collins, 25. "There's no way they wouldn't."

No current statistics exist, but a state study of 1998 mileage estimates found that 56 percent of motorists underestimated their travel – and nearly half of those lowballers erred by more than 6,000 miles.

AB 2800's voluntary program, though seemingly narrow in scope, teams environmental groups with insurance companies as part of a much broader, long-range strategy to cut miles driven and lower greenhouse gas emissions, a key state goal.

Ultimately, passage of AB 2800 could set the stage for battles over whether the state should allow insurers to require high-tech devices for tracking mileage and whether to encourage pay-as-you-go policies that charge drivers for each mile traveled.

Huffman said his bill does not address such issues and that state Insurance Commissioner Steve Poizner has wide-ranging latitude to represent consumer interests. But vehicles are pivotal in the state's fight against global warming, he said.

"We need to create incentives to drive less," Huffman said.

Californians own 26 million cars and trucks driven more than 330 billion miles a year, according to the state Air Resources Board.

"The threat that California faces from climate change is real, and a big part of that is transportation, which is something we all have control over in our day-to-day lives," said Lauren Navarro of the Environmental Defense Fund.

Opponents counter that the push for AB 2800 exaggerates insurers' woes and piggybacks onto environmental activism to achieve corporate gain.

"I think there's always sort of a credibility gap between the industry's claims and its actual performance," said Richard Holober of the Consumer Federation of California.

California regulations specifically ban insurers from requiring use of technological devices to record mileage. But firms have the right to require odometer readings when a policy is issued, and when it's renewed every six months or year, said Darrel Ng of the Department of Insurance.

Gunning disagreed that the regulations give firms clear authority.

"In fact, several times we asked for mileage verification tools, and the (insurance department) refused because it would be too 'burdensome' on the customer," Gunning's group said in a letter supporting AB 2800.

Besides confusion over legal limits, insurers say verification is not always practical because many policies are sold online, not every firm has ample staffing to handle a data crush, and stiff competition discourages imposition of cumbersome policies that might upset customers.

State Farm, AAA and Allstate insurance companies said they depend on policyholders, not odometers, when calculating mileage.

"We accept the customers' estimate," said Cynthia Harris of AAA. "So the bottom line is the customer has the final say."

AB 2800 would allow insurance companies to propose methods of verification for acceptance by Poizner, whose office has taken no position on the legislation but is studying the issue separately.

Huffman's bill awaits action in the Senate after passing the Assembly, 72-2. Gov. Arnold Schwarzenegger has taken no position.

Opponents contend the legislation is a thinly veiled push toward allowing insurance companies to require use of satellite technology – known as GPS – that can track not only how far you drive, but where and how aggressively.

"That's a huge invasion of privacy," Holober said. "It's nobody's business."

"I should not be required to give up my privacy in order to pay fair insurance rates," added Carmen Balber of Consumer Watchdog, an industry watchdog group.

NOTE: HUFFMAN IS A VERY RESPECTED PERSONALITY IN THE INSURANCE INDUSTRY.

Huffman called such claims a "phantom issue."

"The notion that this will require installation of 'spyware' on your car is nonsensical," he said, adding that AB 2800 proposes a voluntary program in which the state, not insurers, would determine verification methods.

"If I thought that this bill was somehow anti-consumer, there's no way I'd be carrying it," Huffman said.

About the writer:

* Call Jim Sanders, Bee Capitol Bureau, (916) 326-5538.

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Comments
There are 2 comments posted so far. Below is a sampling of the latest comments.

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*
PapaDoyle at 5:26 AM PST Monday, June 30, 2008 wrote:

If insurance companys are allowed to track every mile you drive then we should be able to track ever...more
*
lpugh at 12:16 AM PST Monday, June 30, 2008 wrote:

Compares to pissing on a forest fire but paying to do so...more

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