Auto insurers may use customer’s address to calculate premiums

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The Associated Press

In a major victory for the insurance industry, the California Supreme Court declined Wednesday to review a lower court’s ruling that auto insurers can calculate the bulk of premiums based on where a customer lives.

That means the same driver living in an urban or high-crime zone will pay more for insurance than if he lived in a rural town or an area with less crime.

“That’s not what voters voted for,” said Mark Savage of Public Advocates Inc., which asked the court to review a lower court’s November decision.

The Supreme Court refused to review a ruling by the 1st District Court of Appeal in San Francisco that gutted core provisions of Proposition 103. That 1988 initiative required auto insurers to base prices on a driver’s safety record, years of experience and number of miles driven.

The initiative allowed insurers to consider ZIP code as an “optional” subordinate factor, but the high court’s inaction Wednesday means where somebody lives is a major element for calculating premiums.

“I think that the Supreme Court looked at the extensive nature of the case and examined all of the issues,” said Steven Weinstein, who represented several insurance companies urging the court not to intervene. “I think it will benefit all policy holders in the state.”

Only justices Stanley Mosk, Joyce L. Kennard and Chief Justice Ronald M. George voted to review the decision. The seven-member court requires a majority vote to take cases.

The appeals court in November agreed with insurers who said they needed to give significant weight to a customer’s ZIP code because risk factors varied from area to area, affecting the price of a policy.

“Territory is a more important determinant of the risk of loss than any other single factor,” Justice Daniel M. Hanlon wrote in overturning a lower court’s decision.

Consumer groups have mounted a long-standing challenge to what they call discriminatory pricing practices by insurers.

“This decision is very disrespectful of the will of the people,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, which sponsored Proposition 103.

In court papers, consumer groups pointed out the case of a woman with 27 years of driving experience living in the Los Angeles suburb of Pacoima. She would pay a $772 annual premium, they said, compared to $281 if she lived in San Luis Obispo.

The insurance industry said there’s a good reason for charging higher premiums based on where drivers live. Drivers in San Francisco, Oakland and Los Angeles, for example, pay more because it costs more to insure motorists in high-crime and high-accident areas.

Without basing rates on ZIP codes, rates for good drivers in remote counties would go up to subsidize premiums for good drivers in metropolitan areas, the industry said.

Premiums based on ZIP codes were allowed under 1996 regulations from then-Insurance Commissioner Chuck Quackenbush. Legislation to repeal the rule was defeated that year.

Two years ago, an Alameda County judge ruled that premiums based largely on ZIP codes were illegal. Quackenbush appealed.

Quackenbush resigned this year amid allegations he let insurers avoid billions in fines after the 1994 Los Angeles earthquake by allowing them to donate far less money to a nonprofit fund he is accused of misusing. He was replaced by Harry Low, who urged the high court not to take the case.

“I will consider taking a fresh look at whether the current regulations provide the most equitable approach for determining auto insurance rates,” Low said.

Proposition 103 also rolled back rates, and companies have refunded California drivers $1.2 billion.

The case is Spanish Speaking Citizens’ Foundation Inc. vs. Low, S095061.

Consumer Watchdog
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