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Your auto insurance premiums must be based on your driving safety record, your annual mileage, and your years of driving experience, rather than where you live.

Proposition 103 forces insurers to base premiums primarily upon factors within your control, rather than upon where you live. Under 103, auto insurance premiums must be based primarily upon (1) your driving safety record; (2) the number of miles you drive each year; and (3) your years of driving experience. Making the driver’s own safety record the principal determinant of premiums gives motorists a strong incentive to drive safely.

Unfortunately, insurers are continuing to base your rates primarily upon your zip code — a practice known as “territorial rating” — thanks to a 2001 Court of Appeal decision which refused to enforce 103. We are asking the new insurance commissioner to approve regulations which properly enforce 103. (To help us, see below). In the meantime, insurers must still take into account your personal driving characteristics when setting your premium.

Text of Proposition 103 as enacted by the voters:

Automobile Rates & Good Driver Discount Plan
1861.02 (a) Rates and premiums for an automobile insurance policy, as described in subdivision (a) of Section 660, shall be determined by application of the following factors in decreasing order of importance:
(1) The insured’s driving safety record.
(2) The number of miles he or she drives annually.
(3) The number of years of driving experience the insured has had.
(4) Such other factors as the commissioner may adopt by regulation that have a substantial relationship to the risk of loss. The regulations shall set forth the respective weight to be given each factor in determining automobile rates and premiums. Notwithstanding any other provision of law, the use of any criterion without such approval shall constitute unfair discrimination.

Law as subsequently amended by legislature (changes from voter approved law in bold):

No amendments were made by the Legislature.

Status of Provision:

Insurers have bitterly fought to block implementation of this provision of Proposition 103 since it passed.

Judicial review of a legal challenge brought by insurers against implementation of this provision of the proposition stalled its implementation for more than three years after passage of Proposition 103. Insurers contended that rates must be “cost-based” under 103 and that the voters could not lawfully alter insurance classifications to substitute the “mandatory” factors for other factors that the industry argued could be shown to hold more predictive power (i.e., territory). On November 27, 1990, a California Court of Appeal dismissed the challenge without deciding the merits.

In December, 1994, the California Department of Insurance published a study that rebutted the industry’s subsequent contention that territorial rating was consistent with the provisions of Proposition 103. The study found that, contrary to the industry’s predictions, eliminating territory as the primary determinant of premiums would not result in substantial premium increases for good drivers. (OFFICE OF POLICY RESEARCH, CALIFORNIA DEPARTMENT OF INSURANCE, IMPACT ANALYSIS OF WEIGHTING AUTO RATING FACTORS TO COMPLY WITH PROPOSITION 103 (1994)).

In 1996, insurance companies sponsored legislation in Sacramento to repeal this provision of Proposition 103. FTCR defeated it.

In 1997, pro-industry California Insurance Commissioner Chuck Quackenbush promulgated new regulations which allowed insurance companies to continue to base premiums on a motorist’s zip code, in violation of the law.

FTCR and other citizen groups filed lawsuits to compel the Insurance Commissioner to properly enforce the statute. In March 1998, the San Francisco Superior Court ruled that the regulations violated Proposition 103. Both insurers and Quackenbush appealed, however, and in December 2000, the California Court of Appeal reversed and upheld the regulations. A few days later, the leading author of that decision resigned his position on the court and went to work for a private arbitration service that works frequently with insurance companies.

On March 28, 2001, the California Supreme Court refused a request by FTCR and other citizen organizations to review the Court of Appeal decision.

In June 2003, FTCR and other community and consumer groups petitioned Insurance Commissioner John Garamendi to rewrite the regulations and require insurers to base rates on motorists’ driving records rather than their ZIP code.

In June 2006, Commissioner Garamendi finalized regulations to properly implement Prop 103, requiring insurers to base rates on driving safety factors and limit the impact of other factors such as ZIP code and marital status.

On July 10th, 2006, Auto Club of Southern California announced that it will implement the Prop 103 regulations issued by Garamendi, becoming the first auto insurer to comply with this provision of Prop 103.

Source Documents:

Review a report with a chronology of efforts by FTCR to force the implementation of this provision of Proposition 103.

Virtually all insurance companies in the state were found to be misinterpreting the regulations in order to continue to base premiums on territory, in violation of Proposition 103. Read newspaper articles exposing how the Quackenbush regulations permitted insurance companies to evade the law:

Loophole Seen Gutting New Car Insurance Plan, Kenneth Reich, LOS ANGELES TIMES, Oct. 4, 1997, at A1.

An industry trade joumal noted that Insurance Commissioner Quackenbush had improperly approved the rating plans: “[T]he commissioner has been misleading the public and the media by proclaiming that under his new rules territory is no longer the dominant factor in setting auto insurance rates.” – California Class Plan Ruling Should Be In Quackenbush‘s Hands; What Will He Do?” – AUTO INSURANCE REPORT, Nov. 17, 1997, PG. 1, 3.

Relevant Legal Materials:

Read FTCR’s lawsuit challenging regulations sponsored by Insurance Commissioner Quackenbush in 1996 which allowed insurers to violate this provision of Proposition 103 by continuing to use zip code as the primary factor in determining premiums.

Read the decision by San Francisco Superior Court, March 25, 1998, ruling that the Quackenbush regulations were invalid. (Proposition 103 Enforcement Project v. Quackenbush and Spanish Speaking Citizens’ Found., Inc. v. Quackenbush, consolidated case No. 796071-6 (Alameda Superior Court filed March 25, 1998)).

The December 2000 decision by the First District Court of Appeal upholding Quackenbush and insurers’ position can be found at law libraries: CITE.

Read FTCR’s news release condemning the Court of Appeal decision.

Read FTCR’s February 7, 2001 petition to the California Supreme Court requesting it review and overturn the Court of Appeal decision.

Updated: July 10, 2006

Consumer Watchdog
Consumer Watchdoghttps://consumerwatchdog.org
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