California Opens an Investigation into Legality of Affinity Group Discounts

The California Department of Insurance is investigating the legality of discounts offered affinity groups which they claim cause disparities in auto insurance rates that lead to higher rates for lower-income families and communities of color. According to a study conducted by the Department, affinity groups of white-collar occupations and highly skilled jobs receive premium reductions of 1.5% to 25.9%.

The study went on to show affinity group discounts resulted in greater benefits to residents living in ZIP codes with higher incomes and the least benefits to residents of ZIP codes with lower incomes. The data reflected similar relationships between ZIP codes with predominately non-Hispanic white populations and ZIP codes with large minority populations. The discounts often go to groups with higher educational attainment.

A report and hearings by Consumer Watchdog and other consumer groups sparked the Department to conduct the study. The report argued that California’s Proposition 103 does not allow insurers to offer discounts to drivers based on anything other than their driving records. The consumer groups argue that by offering better rates to individuals based on the affinity groups to which they belong, insurers force the poor, under-educated, and minority groups to subsidize the rates of the wealthy. California has already prohibited insurers from using gender as a factor in setting auto rates.

For any questions regarding California’s investigation or any other regulatory compliance concerns, please contact Westmont Associates, Inc.