Department to Hold Hearings on New Regulations Requiring Rates Based Primarily On How Policyholders Drive, Not Where They Live

Consumers Union & FTCR

SAN FRANCISCO, CA — California Insurance Commissioner John Garamendi granted a statewide petition late yesterday filed by consumer and community groups and the cities of Los Angeles, Oakland, and San Francisco to bar insurance companies from basing their auto rates mostly on a driver’s ZIP code. The petition filed in May had asked Garamendi to open a rulemaking proceeding to amend the Insurance Department’s regulations so that auto insurance rates are based primarily on how well a policyholder drives, not where he or she lives.

Garamendi’s order agreed that the issue is important and opens a rulemaking proceeding to consider amending former Insurance Commissioner Chuck Quackenbush‘s regulation, which has allowed insurers to base a policyholder’s auto rates mostly on their ZIP Code, gender, marital status, and other factors, rather than how much and well the policyholder drives.

“Commissioner Garamendi’s decision to open this critical proceeding is a victory for millions of drivers across California who are unfairly charged rates based primarily on where they live, not how well they drive,” said Mark Savage, Senior Attorney at Consumers Union and lead counsel for the petitioners. “We look forward to working with Commissioner Garamendi over the next few months to amend the regulations and implement the will of California’s voters who enacted Proposition 103 back in 1988 to end such discriminatory insurance practices.”

The broad-based coalition of community and consumer groups and cities filing the petition comprises Consumers Union, the National Council of La Raza, the Southern Christian Leadership Conference of Greater Los Angeles, Foundation for Taxpayer and Consumer Rights, Spanish Speaking Citizens’ Foundation, and the cities of Los Angeles, Oakland, and San Francisco. The petition asks Commissioner Garamendi to require auto insurers to base their rates primarily on three mandatory factors–driving record, miles driven, and years of driving experience–as Proposition 103 requires.

Basing auto rates primarily on where a driver lives is unfair to all Californians, but it has a particularly disproportionate impact on the poor and exacerbates the widespread problem of uninsured and underinsured drivers. For example, a young male driver would pay $1,706 for insurance from one major insurance company in San Luis Obispo. The same driver, with the identical driving record and other characteristics would pay $7,844 for insurance in South Central Los Angeles. The only difference in these two rates is the ZIP code. In Oakland, a premium in the city’s predominantly Latino Fruitvale district would be $4,417, while in wealthier Montclair district, the same driver would pay $3,398.

ZIP code rating can also have a negative impact on drivers living in more rural communities. One major insurer charges drivers an annual premium of $1,234 in Grass Valley, Nevada County. But if the driver moves to Modesto, in nearby Stanislaus County, the insurer increases the premium for the same driver with the same driving record by 69 percent to $2,084. Similarly, an annual premium in Ukiah, Mendocino County is $1,367, but would go up to $1,605 for the same driver in nearby Humboldt County.

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