FTCR Hails Move By First Auto Insurance Company To End ZIP Code Rating System, Comply With Proposition 103
Santa Monica, CA — The Foundation for Taxpayer and Consumer Rights (FTCR) hailed today’s announcement by the Automobile Club of Southern California that it would become the first company to implement Insurance Commissioner Garamendi’s regulation requiring auto insurance companies to cease the practice of ZIP code rating, as required by Proposition 103. Auto Club, the fourth largest auto insurer in California, said premiums will decrease by an average $134 for 88% of its nearly one million California policyholders.
The announcement was made at a Los Angeles press conference where FTCR founder Harvey Rosenfield, the author of Proposition 103, joined Insurance Commissioner John Garamendi and Thomas V. McKernan, the President of the Auto Club of Southern California.
“This is an historic moment for all California motorists,” said Rosenfield. “For decades, insurance companies have utilized ZIP code to set auto insurance premiums, despite the unfairness of that system and the voters’ decision in 1988 to require companies to base premiums primarily upon our driving record. Today, the Auto Club has demonstrated extraordinary leadership, embraced change and made a commitment to Southern California by deciding to implement Commissioner Garamendi’s good driver regulations ahead of schedule. The Auto Club‘s decision sets a standard for fairness in the marketplace that should be emulated by other insurers.”
In 2003, FTCR, Consumers Union, Public Advocates, Southern Christian Leadership Conference of LA, National Council of LaRaza, joined by the cities of Los Angeles, Oakland and the city and county of San Francisco, asked Commissioner Garamendi to implement Proposition 103‘s requirement that auto insurance rates be based primarily on three factors — driving safety record, annual miles driven and years driving experience — and less on other factors such as ZIP Code and marital status. In December 2005, Garamendi said he would change the existing rules, which were put in place by disgraced former commissioner Chuck Quackenbush.
Rates To Go Down Under New System
Today’s announcement marks the beginning of the end of the controversial zip code rating system, under which good drivers on one side of the street pay dramatically higher premiums than their neighbors just because they happen to live in a different ZIP code. Under the geographic system, good drivers in neighborhoods throughout California subsidize bad drivers.
In the 1970s and 1980s, community organizations challenged the practice in three court cases, culminating in a 1987 decision by the California Supreme Court stating that opponents of territorial rating had to take their case to the legislature. One year later, after state lawmakers beholden to the insurance lobby refused to take action on that and other insurance company abuses, voters took matters into their own hands. Proposition 103, which mandated regulation of rates and underwriting practices and made the office of insurance commissioner an elected position, also barred ZIP code as the principal determinant of auto premiums. Insurers spent $80 million in their unsuccessful attempt to defeat the citizen-backed measure.
The battle did not end there. Insurance Commissioner Chuck Quackenbush sabotaged the law with a regulation containing a loophole that permitted insurers to continue to base rates primarily on ZIP codes. Industry-sponsored legislation sought to repeal the reform, but was blocked after public outrage. Commissioner Garamendi’s decision to enforce the law sparked a series of attack ads against him in May.
The new rules, which were finalized by Commissioner Garamendi, last month, are currently undergoing final review by Governor Schwarzenegger’s Office of Administrative Law and are expected to take effect in August.
“The Auto Club‘s action shows that the arbitrary ZIP Code system can be terminated without causing the kind of problems that some companies have claimed would arise. The vast majority of motorists, and all good drivers, will benefit from the change,” said FTCR’s Executive Director Douglas Heller.
In addition to deciding to implement Garamendi’s new good driver regulation — even before it has officially taken effect — the Auto Club announced it would reduce its rates by an average of 7% for all auto policyholders.
“It is gratifying to see that our efforts to implement the will of the voters are finally coming to fruition,” said Pamela Pressley, FTCR’s Litigation Director. “Our analysis shows that the auto premiums of other insurers ought to be reduced substantially and we intend to work with the Commissioner to lower rates for all policyholders.”
Since it was passed in 1988, Proposition 103 has become the nation’s most effective insurance regulatory system, refunding over $1.2 billion dollars to policyholders and saving auto insurance customers over $23 billion. FTCR, a non-profit, non-partisan organization.
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