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Thursday, September 16, 1993
Home Edition
Section: Business
Page: D-1

State Criticizes Auto Insurers on Pricing Tactics; Consumers: Garamendi says 'undercover' survey shows uneven quotes, illegal tie-ins. Industry attacks study as flawed.


Can consumers get a reliable price quotation from an auto insurer
over the telephone?

Not likely, says the California Insurance Department.

In an "undercover" phone survey of insurance agents representing the
state's 20 largest carriers, department employees posing as consumers got
prices that varied widely from the official company rates filed with the

The insurance industry quickly attacked the survey as misleading and
statistically flawed.
Of 396 quotes obtained by surveyors, only 75 were within $10 of the
official price, Insurance Commissioner John Garamendi said at a news
conference Wednesday. On average, quotes were 7% to 15% above the
official rates.
Quotes were also hard to obtain, Garamendi said, with nearly one-third
of the agents contacted declining to offer prices over the phone.
Garamendi said he suspected that by refusing to quote prices, insurers
were trying to get around the "take-all-comers" provisions of Proposition
103. The 1988 voter initiative requires carriers to sell insurance to any
driver with a good record.
In criticizing the survey, a spokesman for Farmers Insurance Group
noted that the sample sizes--for example, 48 Farmers agents contacted out
of 5,000 statewide--were too small to draw any valid conclusions.
For only three companies--Allstate, Farmers and State Farm--did the
surveyors obtain more than 20 quotes. One company that Garamendi praised
for its accuracy--Amica Mutual--provided only three quotes.
Also, many of the agents surveyed were independent and not employed by
the insurers directly. Consumers should expect different quotes from
independent agents because they are competing against one another for
business, said James A. Snyder, president of the Personal Insurance
Federation of California, a trade group.
Insurance Department spokeswoman Elena Stern acknowledged that there
was no effort to make the survey statistically valid. Rather than
choosing agents scientifically to ensure a representative sample, the
surveyors simply used listings in phone books and business directories.
"Our goal was to go through what consumers go through," she said.
The survey involved up to 15 staff people making calls over a
three-week period, she said. They posed as consumers trying to get
minimum coverage for a 1984 Chevrolet Celebrity being driven 10,000 miles
a year by a 35-year-old person with one traffic ticket. They gave
addresses in Westwood and Compton as well as in East Oakland and the
Oakland suburb of Alameda. Otherwise, all the information given was
One of the findings turned up in the survey was that some insurers
refused to sell auto insurance unless the consumer also agreed to buy a
homeowners policy.
Garamendi said such tie-ins are illegal.
He scheduled public hearings for next month to investigate further and
said he might subpoena agents to testify.


Copyright (c) 1993 Times Mirror Company


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