Are the rich paying less for car insurance? Recent data collected and analyzed by the California Department of Insurance suggests that is the case.
Looking at approximately 16 million personal automobile insurance policies purchased throughout 33 licensed insurance sellers in the state (roughly 62% of policies issued in California), the department sought to determine whether group-priced policies, organized and sold to what are known as affinity groups, constitute a fair interpretation of the law barring discriminatory pricing. Affinity groups include alumni organizations, bar associations, sororities and fraternities, and other membership organizations — even the giant American Association of Retired Persons.
On the surface, cheaper car insurance for members is a perk. In fact, according to recent data from the insurance department, the membership and demographics of affinity group members is very diverse, and there is still a lot to be learned about how people utilize these services and what benefits they bring. That said, it does raise the question: are affinity groups just for a select few Californians? The answer lies in further investigation.
One must wonder why the insurance department didn’t investigate this in the past as thoroughly as Commissioner Ricardo Lara has recently. Granted, the Office of the Insurance Commissioner wasn’t an elected position until 1988, and even then, it was only thanks to a citizens’ group bringing Proposition 103 to a vote. The current office holder, a former state Senator, was elected Insurance Commissioner last November, and is the first in 30 years to examine this issue. But now, with data in hand, what are the policy implications?
First, affinity groups should not be eliminated. Instead, they should be encouraged to diversify their membership so that Californians from more disadvantaged backgrounds can also save money. If lawyers have access to an affinity group for their profession, shouldn’t it also include paralegals, secretaries, clerks, bookkeepers, and even the janitors who work in the lawyers’ offices?
The insurance department held a formal hearing in downtown Los Angeles to present the results of their investigation. After recapping the data, department officials heard from residents regarding their views on affinity groups. A recent graduate attested that a college education doesn’t always mean economic stability and stressed that her alumni discount was the only way she was currently affording her car insurance. A teacher who works in the affluent west side of Los Angeles admitted that she can’t afford to live there, and her lengthy commute is made possible by her California Teachers Association discount on car insurance. Representatives from both the California Black and Hispanic Chambers of Commerce testified to the importance of affinity group discounts for their small business owners, who already face enough barriers to success. Clearly, affinity groups are the difference between affording car insurance and going car-less for many.
Lara has made some rookie political mistakes covered by the press that have raised the attention of political groups and a demand for investigations. Nonetheless, Lara has shown that he is doing the job he was elected to do, unlike his predecessors who sat on their hands and did little to educate themselves, the commissioner’s staff, or even the insurance companies working in California. Kudos to Lara and his department for this investigation into affinity groups, which will ideally pave the way for more equitable and more affordable insurance. Although group rates for insurance are not considered unfairly discriminatory if they are averaged broadly across the people covered under the group, there is debate on the specifics.
Since Prop. 103 requires insurance companies to obtain prior approval from the insurance department when setting group rates, it is clearly in a position to prompt change. Last year, the Consumer Federation of America reported that Prop. 103 was responsible for a total of $154 billion in savings for California drivers on their auto insurance, and that auto liability premiums in California have fallen by 5.7% since 1989, even as liability premiums increased 58.5% across the rest of the country.
Affinity groups can be a force for good, it’s just a matter of making sure that California’s more vulnerable residents can also enjoy these discounts.
Perhaps the general sentiment can be summed up by a comment by California Black Chamber President Edwin Lombard: “Regulate affinity groups, fine. But don’t take them away.”
Raoul Lowery Contreras is a political consultant and author of the new book White Anglo-Saxon Protestants (WASPS) & Mexicans. His work has appeared in the New American News Service of the New York Times Syndicate.