Honesty can cost in auto policies

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

http://www.sacbee.com/111/story/1048751.html

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.

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.

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.
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