Study Appears Designed to Distort Proposal’s Impact on Rural California Communities
SAN FRANCISCO, CA — For months the insurance industry has touted its own study to claim that a consumer proposal to require insurers to base their auto premiums primarily on a policyholder’s driving record rather than ZIP code would lead to higher rates for many California drivers. However, the industry refused to make its data and analysis available to the public so that the reported results could be independently reviewed and verified. Now it appears that the study was deliberately designed to predict large increases in rural communities throughout the state.
“The insurance industry manipulated their secret data to scare and confuse Californians,” said Oakland City Attorney John Russo. “We hope that Commissioner Garamendi will see through this ploy and urge him to adopt our proposal so that good drivers won’t be penalized with higher auto insurance rates simply because of the neighborhood they live in.”
Proposition 103 requires insurers to base drivers’ automobile insurance premiums primarily on three mandatory factors: driving safety record, annual mileage, and years of driving experience. Any other optional factor approved by the Insurance Commissioner, such as a driver’s ZIP code, must have less weight than any of the mandatory factors. But state regulations enacted by former Insurance Commissioner Chuck Quackenbush have allowed insurers to continue basing their auto insurance premiums mostly on a policyholder’s ZIP code — and even marital status and gender — instead of their driving record. As a result, millions of Californians pay higher auto insurance premiums because of the neighborhood they live in even though they have good driving safety records and despite the fact that Proposition 103 banned premiums based primarily on ZIP code.
Last year, a group of consumer and community groups along with the cities of Los Angeles, Oakland, and San Francisco petitioned the California Department of Insurance to require insurers to base their rates primarily on the three mandatory factors spelled out in Proposition 103. Since that time, Insurance Commissioner John Garamendi has held a series of town hall meetings around the state to gather public input and the insurance industry has used its study to try to discredit the consumer proposal.
The consumer coalition supporting the petition highlighted the flaws in the insurance industry’s study in a letter sent to Insurance Commissioner John Garamendi today. The letter notes that during a public workshop on the proposal at the California Department of Insurance in San Francisco last week, Robert Downer, the actuary hired by the insurance industry to conduct the study, acknowledged that his analysis relied on a methodology that appears designed to predict that the proposal would have a negative impact on rural communities throughout the state. Downer testified that instead of “pumping” or maximizing the weight of each policyholder’s driving safety record, annual mileage, and years of driving experience, he instructed insurers only to “temper” or minimize the weight of the ZIP code and other optional factors when measuring the proposal’s impact. During the workshop, the Insurance Department’s staff confirmed that using this technique would predict large premium increases in rural communities.
According to Insurance Department staff at the public workshop, the agency conducted its own analysis in 2000 and 2001 that confirms the results of its exhaustive 1994 study on Proposition 103. That study showed that when the rating factors are properly aligned as the consumer petition calls for, the majority of increased premiums fall on those drivers with poorer safety records, less driving experience, and greater miles driven without forcing the large premium increases in rural communities projected by the insurance industry’s study. By contrast, the Department study showed that those with good safety records, more years of driving experience, and fewer miles driven each year, paid less. And the study showed that limiting the weight of ZIP code benefited good drivers throughout the state both in urban and rural communities.
“Basing insurance premiums primarily on a policyholder’s driving record rather than ZIP code will bring fairness to the system and benefit good drivers throughout California,” said Mark Savage, Senior Attorney with Consumers Union’s West Coast Office. “We urge the Department of Insurance to ignore the industry’s misleading analysis and implement the proposed rules that end ZIP code rate discrimination.”
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