City attorneys say geography is determining costs

The San Francisco Chronicle

Californians’ home addresses are key in setting their car insurance rates — even though a 1988 insurance reform initiative said that should not be the case.

People in cities generally pay more than those in rural areas; people in poor neighborhoods usually pay more than those in wealthy enclaves.

The city attorneys of San Francisco, Oakland and Los Angeles, along with several community groups, on Thursday filed a petition with state Insurance Commissioner John Garamendi, asking him to require insurers to base rates on how well people drive, not where they live. Relying on geography unfairly penalizes low-income people and minorities, they said.

Garamendi, who took office Jan. 6, said he agrees with the groups and will start public hearings this summer on how to revise regulations, a process that could take more than a year.

But insurers, who have already fought this issue in court and won, say their approach is both reasonable and legal.

Insurance companies review the number of claims and cost of claims in any given area to set rates, said Bill Sirola, a spokesman for State Farm Insurance in Sacramento. “That’s what insurance is about; it’s measuring risk.”

The cities and groups called on Garamendi to change regulations that they say allowed insurers to circumvent Proposition 103, a 1988 initiative that called for driving record, annual mileage and years of driving experience to be the key factors in setting rates.

“How can this be fair?” asked Oakland City Attorney John Russo at a news conference at San Francisco City Hall. “Why should a young man in the Fruitvale pay 30 percent more for insurance” than someone with a similar record who lives in Montclair, he said, citing hypothetical examples distributed by the groups.

The examples showed that the same driver would pay $3,389 per year in Montclair compared with $4,417 in Fruitvale, two Oakland neighborhoods a few miles apart. In South Central Los Angeles, the driver’s annual rate would soar to $7,844, but up the coast in tony Santa Barbara, the rate would be $2,173.

“What you essentially have here is racial profiling by another name,” San Francisco City Attorney Dennis Herrera said.

But similar arguments failed to sway state courts two years ago.

In December 2000, the state Court of Appeal in San Francisco unanimously ruled that using a driver’s home address as a key factor to set rates is fair because “territory is a more important determinant of the risk of loss than any other single factor.” In March 2001, the state Supreme Court ruled 4-3 against hearing an appeal of that decision.

The cities and groups are bringing up the issue again because they think Garamendi, who was elected last year, is more consumer friendly than former Commissioner Chuck Quackenbush, who implemented the regulations that they said allowed insurers to skirt Prop. 103.

Garamendi’s spokesman said he thinks a consumer’s driving record should take
precedence over his home address in setting rates.

“It is not fair simply to use a ZIP code to determine the rates that are charged because someone with a perfectly clean (driving) record could be charged more based just on where they live,” said Norman Williams, a spokesman for Garamendi. “He believes the groups have provided sufficient evidence to warrant investigation of this matter.”

Insurers said changing the regulations would cause rates to soar because rural drivers would have to subsidize the more frequent and more expensive accidents in cities.

“If you take geographic territory out, probably more than 50 percent of the drivers in this state will receive an instant increase in their premium because of the disparity it would cause,” said Jerry Davies, a spokesman for the Personal Insurance Federation, a Sacramento group that represents State Farm, Farmers, Safeco, Progressive and 21st Century, who collectively have about 44 percent of the California market. “We’re talking from 10 percent all the way up to 80 percent increases for good drivers.”

Davies said that low-income people can purchase policies a lot less expensively through the California Low Cost Automobile Insurance Program, which the Legislature implemented in 2000 for Los Angeles and San Francisco counties. About 4,000 people, mainly in Los Angeles, buy bare-bones coverage through that program. To broaden it, the Legislature voted to raise the income limits and lower the cost, starting this year.

In addition to San Francisco, Oakland and Los Angeles, the groups that filed the petition are Consumers Union, Southern Christian Leadership Council of Greater Los Angeles, Foundation for Taxpayer and Consumer Rights, National Council of La Raza, and the Spanish Speaking Citizens’ Foundation.
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CHART:

Car insurance and ZIP codes
Where you live plays a huge role in determining how much you pay for car insurance, as these  hypothetical examples show.

Example 1: Single man, licensed two years, drives 15 miles each way to school. Purchases $15,000/$30,000 for bodily insurance, $5,000 for property damage, and minimal  coverage for medical payments and uninsured motorist coverage. Has one at-fault accident with $1,000 of property damage. 
Quotes are from Farmers.

Location         Annual premium
San Luis Obispo     $1,706
Santa Barbara      2,173
Fresno              2,864
Montclair (Oakland)     3,389
Fruitvale (Oakland)     4,417
South Central L.A.      7,844

Example 2: Single woman, licensed 22 years, no violations. Drives 20 miles each way to work.  Purchases $100,000/$300,000 for bodily insurance, $50,000 for property damage, $5,000 for  medical payments and $30,000/$60,000 uninsured motorist  bodily injury coverage with $100  deductible on comprehensive coverage and $200 deductible on collision coverage.

Location       Annual premium Insurer
Walnut Creek          $1,377 Allstate
San Francisco    2,039 Allstate
Roseville           1,108 State Farm
Sacramento            1,779 State Farm

Source: Consumers Union
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E-mail Carolyn Said at [email protected]