Honesty can cost Californians in auto policies

SACRAMENTO, Calif. -- Will Californians lie to save money?

Apparently.

New legislation takes aim at an honor system, of sorts, that allows motorists to lowball their annual mileage and save on their car insurance premiums. Being honest, it turns out, 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 insurers 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.

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

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.

The proposed new 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 the bill 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 the bill 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 insurance 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 the bill.

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."

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."

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 the bill proposes a voluntary program in which the state, not insurers, would determine verification methods.

(E-mail Jim Sanders at jsanders(at)sacbee.com.)

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)