AUTO INSURANCE PREMIUMS TO BE BASED ON RECORD, NOT HOME’S ZIP CODE

The Daily News of Los Angeles

SACRAMENTO, CA — Thousands of California drivers with good records who still pay
high insurance premiums because of where they live can expect to see some relief
next year under new state regulations proposed Thursday.

Moving to end years of wrangling over the “redlining” issue, state Insurance Commissioner John Garamendi said the new regulations will require insurers to look first at a driver’s record – not the community of residence – when determining rates.

Currently, many insurers consider a driver’s ZIP code as the most important factor in rate-setting, leading to horror stories of drivers facing premium hikes of hundreds of dollars just for moving across the street or living in urban areas.

“A good driver, wherever they are in the state of California, ought to have a lower rate than a bad driver, wherever that person is in the state of California,” Garamendi said.

The proposed changes still drew controversy, however, with the insurance industry arguing that ZIP codes remain an accurate measurement of risk and a senior citizens group predicting that it would raise rates for elderly and rural residents.

“Many seniors have chosen to live in rural areas precisely because they are on a fixed income and want to live in an area with a lower cost of living,” John Kehoe, policy chairman for the California Senior Advocates League, said in a written statement.

“It is simply not fair to ask good drivers, seniors, rural drivers and others to subsidize drivers in more densely populated regions of the state.”

Sam Sorich, president of the Association of California Insurance Companies, said data have shown that the likelihood of having an accident and the severity of those accidents is related to where a car is garaged.

If insurers cannot fully use those statistics, “we would be doing an injustice to our customers” because many of them would be paying more than they should be, he said.

“We look at past losses, where they occur, how serious they are, and develop our rates to reflect the principle that past losses are an indication of future losses,” Sorich said. “That principle has been affirmed time and time again.”

In arguing its position, the insurance industry commissioned an actuarial study last year that said 60 percent of drivers would experience rate increases under such new regulations.

Consumer groups have disputed that claim, however, saying the industry-funded study was exaggerated and biased in the industry’s favor.

Garamendi said the new regulations, to be officially announced next week, will require insurers to give the most weight to three factors in determining premiums: a person’s driving record, length of time driving and mileage.

After those three mandatory factors will come a series of 16 other voluntary factors, including ZIP code, marital status and school grades.

Currently, insurance companies are free to make any of those 16 voluntary factors the most important element in setting rates – and many of them choose ZIP code as their leading factor.

Garamendi said the new regulations will go through a hearing process before becoming official. It could be six months or longer before insurance companies begin drafting new premium-setting formulas.

The Department of Insurance has ultimate responsibility for approving overall rate hikes, and Garamendi said he will not allow the companies to use the new formula to arbitrarily raise rates overall.

If the department does not approve overall rate hikes, any changes under the new formula will be a zero-sum game: Decreases in some customers’ premiums will be offset by equal increases in others’.

Garamendi, who is making a bid for lieutenant governor next year, said the new regulations are based on insurance-reform measure Proposition 103, passed by voters in 1988.

Garamendi, who was commissioner at the time, said that when he tried to implement Proposition 103‘s various provisions, he encountered sharp resistance, including legal challenges, from the insurance industry.

He did not have a chance to finish addressing the issue before leaving office, and his successor, Chuck Quackenbush, rewrote some of the regulations in the industry’s favor.

Garamendi, who was elected commissioner again in 2002, took up the issue once more in 2003 after receiving a petition from the cities of Los Angeles, Oakland and San Francisco as well as from Consumers Union and the Foundation for Taxpayer and Consumer Rights.

Those consumer groups praised Garamendi’s decision.

“The people who are going to pay more are the bad drivers who’ve been subsidized all these years by good drivers all throughout California,” said foundation founder Harvey Rosenfield, who authored Proposition 103.
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Contact the author, Harrison Sheppard at: (916) 446-6723 or [email protected]