Robert Sargent of Tennant Risk Services has started a blog on Specialty Lines Coverages and he has more info on California’s use it and lose it regs. Bob points to Barry Zalma’s (law firm site) summary of the situation which is quite interesting. Just to quote some highlights…
The Commissioner cites as justification for a drastic change preventing insurers from exercising their judgment states
Throughout 2001, CDI received only 318 formal complaints regarding homeowners insurance. In contrast, by the third quarter of 2002, CDI had received 1,200 written complaints from consumers, making the subject of homeowners insurance the number one consumer complaint issue in Property and Casualty lines at the Department of Insurance...." (presumably a quote from the CA DOI)
Since there are 30 million people in California 1200 complaints is such a small sample of the California public to be inconsequential. Of those 1200 complaints the Commissioner fails to state how many individuals had problems obtaining or maintaining homeowners insurance. In fact, the market is wide open and there is no record evidence presented that insurance is not available to those complaining nor is there evidence that insurers cancel policies simply because a claim was made. If that statement was true the number of complaints would have been in the millions rather than 1200.
This corresponds generally to my view of the world, but I believe insurers have a tendency to use the tool of the week like it is the only tool they have. For example, the problem with credit scores isn’t that it does a poor job of discriminating against high and low risks, but some insurers dropped good long term customers along with the bad when they adopted credit scoring as an underwriting tool. It may be the use of CLUE data is also used as an underwriting club when it should be used as a scalpel. Companies interested in long run value maximization will realize that the tools through away good customers. These are likely the people who complain too. In effect, regulators respond to these complaints to try to get companies to use the tools differently. Good managers can, and likely do, beat the regulator to the punch.