The Daily News of Los Angeles
The president and chief executive officer of Farmers Insurance Group acknowledged Wednesday that ZIP codes, long criticized as the basis for unfairly raising rates, are a crucial tool when it comes to insuring “underserved communities.”
It has helped the company generate about $70 million in revenue in the past 10 years.
“It’s a way to slice and dice,” said Martin Feinstein, whose company has relied on ZIP codes for almost a decade to gain market share in regions where per capita income falls below the 50th percentile.
In 1994, the company started Farmers Action for Communities Tomorrow, a program that focused on producing a profitable business model in underserved communities. At Garamendi’s urging, Farmers began evaluating neighborhoods where at least two-thirds of the population consisted of minorities, along with several other characteristics.
Farmers identified 183 such areas by ZIP code in California, and they have generated close to $30 million in premiums. The program also operates nationwide.
Faye McClure, president of the FACT program, said Farmers seeks out existing agents in various communities who then begin selling the insurer’s products. A bulk of the insurance sold in these communities are homeowners policies that cost about $480 a year.
“Obviously, it wouldn’t be fair to offer this in Beverly Hills,” Feinstein said.
Sun Valley, Pacoima, San Fernando, Arleta and North Hollywood are the communities served in the San Fernando Valley.
Van Nuys-based agent Jose Alfaro has been selling FACT products for 2 1/2 years. His agency offers only homeowners insurance policies through the program. “And offering (FACT) auto insurance would probably be a good idea,” he said. “You don’t have your conventional carriers catering to these areas because of risk.”
That risk is causing California motorists to spend as much as $600 more a year for insurance because of where they live, with policyholders in lower-income areas generally seeing greater spikes in premiums, according to The Foundation For Taxpayer and Consumer rights. The Santa Monica-based advocacy group has joined the Consumers Union and the Southern Christian Leadership Conference in an effort to stop insurers from basing insurance rates on postal-address ZIP codes.
“There is definitely a need for programs like FACT. If there is no effort to reach out then a solution is not going to happen,” said Mark Savage, senior attorney for the Consumers Union. “No bank will give you a loan unless you have homeowners insurance.”
But Savage said offering insurance policies is worthless if the products don’t offer enough coverage or are too expensive as a result of ZIP codes.
For example, a married couple purchasing a liability-only auto insurance policy in Woodland Hills will pay $1,356 annually, versus $799 if they lived in Thousand Oaks, according to the Foundation for Taxpayer and Consumer Rights.
Garamendi said he is working with the foundation to resolve the issue of defining insurance rates via ZIP code.
“We want to adjust the factors. And we should be able to do that by next July,” he said.
Evan Pondel, (818) 713-3662 or evan.pondel(at)dailynews.com