Garamendi: Give record more weight than the ZIP code

THE SAN FRANCISCO CHRONICLE

Sacramento, CA — California Insurance Commissioner John Garamendi said Thursday he will push for changes in auto insurance rates that would place more emphasis on a car owner’s driving record and less on the owner’s ZIP code.

Declaring “how you drive is more important than where you live,” Garamendi said he hopes to implement new regulations by next year that are designed to settle a 17-year-old argument about how insurance companies determine what to charge auto owners.

The announcement was praised by consumer groups who argue that companies discriminate against minorities and the poor by charging higher rates based on the neighborhood a motorist lives in.

But the insurance industry countered that Garamendi’s proposal would lead to higher rates for many California drivers, and at least one lawmaker, Assemblywoman Lois Wolk, D-Davis, expressed concern that the changes could lead to higher rates in rural and suburban areas.

Drivers who live in congested or higher-crime areas are more of a risk, noted Sam Sorich, president of the American Insurance Association, and therefore should pay more for insurance.

“The fact is, where a car is located is an important factor in its risk,” he said.

But Garamendi said the new regulations will not force insurers to ignore a car owner’s neighborhood, just make it a less important factor.

Garamendi characterized the changes as the final implementation of Prop. 103, which was approved by voters in 1988. That proposition required insurance companies to concentrate on issues like a driver’s history as they set rates, but consumer groups have long complained that former Insurance Commissioner Charles Quackenbush weakened Prop. 103 with regulations he imposed.

“The voters said this is how it should be done. The people who should pay more are bad drivers,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights.

Garamendi said he will give details of the changes next week and hold hearings early next year, predicting he could give final approval to the new rules by July.

He said his proposal will mirror a proposal put forward by consumer groups and three cities — Oakland, San Francisco and Los Angeles — who petitioned him in 2003 to change the regulations, which allow insurance companies to place significant weight on factors like location and marital status when determining rates.

The new rules will require companies to place much more emphasis on driving history, daily mileage and years of driving experience.

Garamendi said the current system is foolish, noting that people living close to each other but in different ZIP codes have substantially different insurance costs. He gave as an example the Rockridge neighborhood in Oakland, where residents on the east side of Broadway pay as much as 50 percent more than those who live on the west side of the street.

“There was no sense, no logic and no fairness to it,” he said.

A study by Consumers Union released this week showed that a driver in a primarily Latino ZIP code would pay 13 percent more, on average, than the same type of driver in a primarily white area. A driver in a largely African American ZIP code would pay 60 percent more than the driver in the white neighborhood, according to the group.

The practice was referred to as ZIP code profiling by Dennis Herrera, city attorney for San Francisco.

The insurance industry promised to fight the changes, contending they will force companies to raise rates on about 60 percent of drivers, a statistic dismissed by consumer groups. Sorich said the impact could lessen rates in urban areas while raising them in rural ones.

And one person opposing the changes said that Garamendi, who is running for lieutenant governor next year, is proposing the new regulations to garner more attention.

Garamendi is trying to lower rates “in neighborhoods that have a higher voter turnout,” complained John Kehoe of the California Senior Advocates League. The group was previously called California Senior Action Network and received funding from an auto insurer.