Premiums will depend more on driving record

Sacramento Bee

When it comes to calculating a driver’s risk of being involved in a car accident or having the car stolen, where the driver lives really matters. That is why people who live in crowded cities generally pay more for auto insurance than those who live in sparsely populated farming communities.

Despite scary claims to the contrary by insurance companies and their allies at the California Farm Bureau Federation, that is not likely to change much under some sensible new auto insurance regulations. State Insurance Commissioner John Garamendi intends to enact these changes later this year.

For the first time ever, the Garamendi rules would force insurance companies to do what voters required in 1988, when they approved Proposition 103. The initiative requires insurance companies, when setting auto insurance premium rates, to give the greatest weight to just three factors — driving record (things like the number of accidents or speeding tickets); driving experience (how many years a person’s been licensed); and miles driven annually (does the driver commute 200 miles a day or just five?).

Insurance companies never liked Proposition 103 to begin with. To help satisfy their concerns, former Commissioner Chuck Quackenbush approved regulations that allowed companies to start averaging in 16 secondary factors when setting auto insurance rates, things such as marital status, gender, academic standing and whether the driver smokes. Most significantly, the secondary factors gave greater weight to local accident and theft levels based on the ZIP code.

Under the Quackenbush rules, this whole averaging technique turned out to be a giant loophole to use a driver’s ZIP code as the primary rate setting guide. That simply wasn’t what Proposition 103 had in mind.

Garamendi’s new rules eliminate the averaging technique that allowed these 16 other factors to trump Proposition 103. That means that none of them can count more than the three primary factors voters said insurance companies must use to set rates — driving record, driving experience and miles driven.

Opponents say the new rules will force rural residents to pay more for their insurance so that city residents can pay less. Officials with the Department of Insurance say that is impossible to know. Both under the current rules and the new ones, companies have wide latitude in pricing their auto insurance. Consumers who shop around can save hundreds of dollars a year under both regulatory schemes.

For auto insurance buyers, the most important thing to understand is that under the Garamendi rules, where a driver lives will still count. It just won’t count more than, say, whether a driver caused an accident last year. That’s both fair and reasonable. It’s also what the law requires.