Community Groups, Cities Urge California Insurance Commissioner To Bar Auto Insurance Rates Based Mostly On Zip Codes

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Petition Seeks Regulation Requiring Rates Based Primarily On How Policyholders Drive, Not Where They Live

LOS ANGELES, CA — Auto insurance rates should be based primarily on a policyholder’s driving record, not where he lives, according to a petition filed today with Insurance Commissioner John Garamendi by a coalition of community and consumer groups and the cities of Los Angeles, Oakland, and San Francisco.

The petition was filed in San Francisco by Consumers Union; Southern Christian Leadership Council of Greater Los Angeles; Foundation for Taxpayer and Consumer Rights; National Council of La Raza; Spanish Speaking Citizens’ Foundation; City of Los Angeles; City of Oakland; and City and County of San Francisco.

“Insurers are charging drivers with good safety records thousands of dollars more for auto coverage simply because they live in the wrong ZIP code,” said Mark Savage, Senior Attorney with Consumers Union’s West Coast Regional Office. “These practices discriminate against California’s low income and minority communities and should be barred by the state.”

The petition calls on Insurance Commissioner John Garamendi to require auto insurers to base their rates primarily on three mandatory factors: driving record, miles driven, and years of driving experience, as is required under Proposition 103. The groups are seeking to strike down a regulation adopted by former Insurance Commissioner Chuck Quackenbush in 1996 that has allowed insurers to circumvent Proposition 103 by giving far more weight to a driver’s ZIP code and other criteria.

Proposition 103 made it very clear that it is illegal for auto insurers to base their rates primarily on where a driver lives,” said Pam Pressley, Staff Attorney for the Foundation for Taxpayer and Consumer rights. “We urge Insurance Commissioner John Garamendi to uphold the will of California voters by overturning this discriminatory practice.”

Passed by voters in 1988, Proposition 103 allowed the Insurance Commissioner to adopt regulations authorizing the use of other optional rating factors for determining insurance premiums. However, the weight or importance of any optional factor an insurer uses, such as ZIP code, gender, or marital status, must be less than the weight of each mandatory factor in determining auto premiums.

As Insurance Commissioner in 1994, Garamendi concluded that the scheme later adopted by Quackenbush wasn’t a legal method for complying with Proposition 103. The Qauckenbush regulation allows insurers to report only the average of the weights of the optional factors, not the actual weights. Thus these current regulations enable California insurers to continue giving ZIP code or territorial factors the greatest weight out of all the mandatory and optional factors.

“The insurance industry has a history of using area underwriting – essentially the same as ZIP code rating – as a proxy for using race to screen out minority customers or charge them higher rates for inferior benefits,” said Reverend Norman S. Johnson Sr., Executive Director of the Southern Christian Leadership Conference of Greater Los Angeles. “Although ZIP code rating is unfair to all Californians, it has a disproportionate impact on the poor and exacerbates the widespread problem of uninsured and underinsured drivers.”

Basing rates primarily on ZIP code, rather than driving record, has serious consequences for many 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. The arbitrary and negative impact of ZIP code rating within and between urban communities can be equally severe. When Driver A moves from ZIP code 90044 in Los Angeles to ZIP code 90045 in Los Angeles, one major insurer drops her annual premium from $4,066 to $2,522.

The parties filing today’s petition initially sought to overturn the regulation allowing ZIP code ratings through the courts in Spanish Speaking Citizens’ Foundation v. Quackenbush. A Superior Court in Oakland ruled against Quackenbush, but the Court of Appeals ultimately declined to overturn the regulation. However, the Appeals Court concluded that the Insurance Commissioner had the discretion to bar the rules adopted by Quackenbush and grant the relief the petitioners now seek.

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Consumer Watchdog
Consumer Watchdog
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