Insurance based on ZIP code irks drivers

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‘It’s insurance company larceny. We’re being penalized because of where we live.’

The Oakland Tribune

Consumer groups want Insurance Commissioner John Garamendi to adopt a petition filed in May that would make insurance companies give less weight to ZIP codes and more to a person’s driving record when setting premiums.

A Thursday night hearing in Oakland was the first of several meetings to be held statewide on the petition, which Garamendi is expected to rule on sometime next year.

Garamendi told about 100 gathered at the Elihu M. Harris State Building in Oakland that he recognized Californians can’t get out of an “economic hole” without having insurance.

“You have to have a car to get to most jobs in California,” Garamendi said. “So you can’t have a job, you can’t have a home, you can’t have a business without insurance.”

He said the ZIP code issue is possibly the most controversial of the many factors that determine insurance rates. Garamendi added that he believes the insurance industry does very little, if any, investment in inner-city communities.

More often than not, drivers living in low-income urban neighborhoods end up paying higher rates than those living in wealthier areas, consumer groups claim.

Oakland City Attorney John Russo, along with San Francisco City Attorney Dennis Herrera, have signed on to the petition, which argues that current regulations let insurers give too much emphasis to ZIP codes than is allowed under Prop. 103, the insurance reform initiative passed by voters in 1988.

“Why should a great driver living in a challenged neighborhood have to subsidize a lousy driver who lives in a wealthy neighborhood?” Russo said at a news conference Thursday in Oakland. The conference was held on Broadway, which divides the city’s Temescal and Piedmont Avenue neighborhoods.

A leading insurer would charge a woman driver with 22 years of good driving experience a yearly premium of $1,442.50 if she lived in the Piedmont Avenue area, but $1,870.22 if she lived in the Temescal district, Russo said.

Brian Treusch, who lives in the Temescal district, figures he could save a couple hundred dollars a year off his $500 yearly auto insurance premium if he moved across Broadway to a Piedmont Avenue neighborhood.

“It’s insurance company larceny. We’re being penalized because of where we live,” said Treusch, a 60-year-old retired pipe fitter.

The insurance industry contends the current system is justified because some areas have higher accident rates and claims costs than others.

Granting the petition would lead to rate increases for 61 percent of all drivers, with suburban and rural communities subsidizing urban areas, according to a study cited by the industry.

Specifically, 63 percent of motorists with a good driver discount would see rate hikes, while 56 percent of drivers who don’t qualify for that discount would see rate decreases, the study found.

Prop. 103 requires that premiums be based on three mandatory factors: a person’s driving record, miles driven annually and years of driving experience. Optional factors such as the driver’s ZIP code, gender and marital status can also be used when setting premiums.

In 1998, Alameda County Superior Court Judge Henry Needham ruled that insurance regulations approved in 1996 by then-Insurance Commissioner Chuck Quackenbush were not in compliance with Prop. 103 because they let insurers give too much weight to ZIP codes. An appellate court struck down Needham’s ruling, but said regulations could be modified.
Staff Writer Laura Casey contributed to this story.

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