Garamendi claims bias in auto insurance pricing

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The San Diego Union-Tribune

State Insurance Commissioner John Garamendi said yesterday that auto insurance pricing guidelines used in California are discriminatory and can cause a wide discrepancy in the cost of insurance from one neighborhood to the next.

“It makes no sense that someone pays less than someone else just because of their ZIP code,” Garamendi said. “Right now, we have a system that cannot be justified.”

In San Diego for a town-hall meeting on insurance pricing policies last night, Garamendi said current guidelines often rank residency, gender and marital status as more important than driving records in establishing insurance rates.

“I don’t think anyone believes that is right, and that includes insurance companies,” he said.

Garamendi said he hopes to design and implement new pricing guidelines by the middle of the year.

California insurers use claims history in determining which rates to charge drivers. Areas that historically have reported a higher number of claims are assigned higher rates than those areas with fewer claims.

Robert Downer, an actuary working for the Personal Insurance Federation of California and the Association of California Insurance Companies, defended the current pricing formulas.

“The current approach is a reasonable one,” he said. “It has insurance premium rates that reflect the costs to insurance companies.”

Three consumer advocacy groups yesterday argued that current standards discriminate against low-income communities.

San Francisco-based Consumers Union, the Foundation for Taxpayer & Consumer Rights of Santa Monica and the MAAC Project of National City presented findings that highlighted the geographic pricing structure.

A resident of La Jolla, for instance, might pay 18.7 percent less for insurance than a driver with a similar record who lives in City Heights. A resident of Coronado might pay $550 for insurance coverage, compared with $686 for a resident of Barrio Heights, just across the San Diego-Coronado Bridge.

“Basing auto premiums primarily on where a driver lives is unfair to all Californians, but it has a particularly negative impact on the poor and communities of color,” said Norma Chavez of the MAAC Project. “The discriminatory practice is making it harder for California’s working families to afford the insurance coverage they are required by law to maintain.”

Downer said changes to the pricing formula proposed by consumer groups in Los Angeles and San Francisco would result in higher rates for 60 percent of the state’s drivers.

Higher rates would be faced by most drivers in rural areas, drivers 50 and older, married couples and some drivers with multiple cars, he said.

An insurance industry-sponsored coalition of senior-citizen groups, rural cities and counties, businesses and minority groups claims that rates for San Diego County drivers would climb by 6.9 percent under the proposal from consumer groups.

The group Californians Against Higher Insurance Rates said rates would climb in 52 of the state’s 58 counties. Rates would drop for drivers in Los Angeles, San Francisco, Sacramento, Orange, Stanislaus and Fresno counties, according to the group’s calculations.

“This proposal would charge people in rural areas more and people in urban areas less,” said Andrew Ysiano, spokesman for the group and publisher of the Latino Times  newspaper in Stockton. “Someone in Los Angeles paying $2,000 for insurance could see that drop by $500, while rural drivers would pay more. It’s just a bad plan.”

State pricing guidelines that have been in effect since 1996 allow insurers to place a heavier emphasis on a driver’s residency than on his or her driving record, said Mark Savage of Consumers Union.

“When you call an insurance company, the first thing they ask you isn’t what your driving record is, but ‘What’s your ZIP code?’ ” said Mark Savage of Consumers Union, one of three consumer groups pushing for state guidelines that would require insurance companies to lean heavily on driving records when quoting rates.

Although insurance companies in California have some latitude for pricing formulas, there is little difference between them, Garamendi said.

The roots of the insurance pricing issue date to 1988, when Proposition 103 called for a restructuring of the industry.

Garamendi, who served his first term as insurance commissioner from 1991 to 1994, said the restructuring was tied up in court battles and that he wasn’t able to implement new standards before leaving office.

“(Insurance Commissioner Charles) Quackenbush wrote regulations that embedded ZIP codes into the pricing structure in what is clearly discriminatory language,” he said. “That’s what we need to fix today.”

Garamendi was re-elected as the state’s insurance commissioner in 2002.
Michael Kinsman: (619) 293-1370; [email protected]

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