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State Commissioner Garamendi wants drivers to pay based on safety records, not ZIP codes

Sacramento Bee (California)

Calling current auto insurance pricing “irrational” and “unfair,” Insurance Commissioner John Garamendi proposed rules Thursday that would require carriers to base premiums primarily on a driver’s safety record, rather than on where he or she lives.

Garamendi wants to close what he considers a major loophole of Proposition 103, the landmark auto insurance measure approved by voters in 1988, which allows insurers to rely heavily on ZIP codes when setting auto policy costs.

“The current automobile pricing is not consistent with the law. We had this basic unfairness. Where you live was more important instead of how you drive,” Garamendi said during a news conference in Sacramento.

“A good driver… ought to have a lower rate no matter where they live.”

Consumer advocates hailed the dramatic shift and predicted substantial savings for good drivers in the future. But insurance industry officials predicted chaos and said rates could soar more than 60 percent for many drivers.

Under Garamendi’s plan, insurers would be required to give less weight to a driver’s place of residence – and 15 other factors, including type of vehicle and marital status – and place more emphasis on the driver’s safety record, experience and miles driven.

The proposed regulations will go through public hearings early next year and could be enacted as early as mid-2006.

Garamendi stopped short of predicting any potential financial savings for consumers, saying the outcome depends on how insurers would implement the new regulations. But he warned insurers: “I will not allow this to be an excuse for any arbitrary rate increases.”

Sam Sorich, president of the Association of California Insurance Companies, said current regulations have produced fair rates and added the change could hurt senior citizens and residents in rural communities.

“We are concerned that… a majority of California drivers would be forced to pay more,” he said.

Insurers cited an earlier industry analysis of a similar proposal that forecast rate increases of more than 60 percent of the state’s 13.5 million drivers.

It projected rates would go up in 52 of the state’s 58 counties.

“The new rates will be more politically and special interest-driven,” said David Snyder, assistant general counsel of the American Insurance Association. “Current insurance pricing reflects what’s really occurring on the highways.”

One lawmaker raised questions Thursday about the potential impact on rural and suburban drivers.

“While I appreciate the commissioner’s desire to reduce rates in urban areas, I remain concerned the proposed changes could come at the expense of auto insurance ratepayers in rural and suburban areas,” Assemblywoman Lois Wolk, D-Davis, said in a statement.

Consumer groups and the cities of San Francisco, Oakland and Los Angeles have long supported changes in insurance rates because of consumer complaints about disparities in premiums.

Garamendi cited one example in which a driver in Oakland’s Rockridge neighborhood would pay 50 percent more for coverage if the driver moved across the street.

“There’s this irrational difference between one area and another. This problem exists around the state, and it has to be dealt with,” Garamendi said.

His office said it conducted an 18-month study of insurance rates in various ZIP codes around the state.

Garamendi’s announcement came three days after a Consumers Union study reported that auto insurers charged higher rates for motorists living in largely African American or Latino areas, compared with white neighborhoods.

Rates were 12 percent higher for consumers with good driving records if they lived in Latino communities and 37 percent more in African American areas, the study said. Insurers denied any racial bias.

Proposition 103 required that insurers use driving record, experience and miles driven to calculate premiums.

But the measure also permitted other factors to be considered and, in 1996, then-Insurance Commissioner Chuck Quackenbush allowed carriers to use ZIP codes in their calculations.

Consumer groups that accuse insurers of overcharging good drivers refuted claims that costs will rise under the proposed regulations. “Insurers have bitterly fought this. They have been trying to frighten people,” said Harvey Rosenfield of the Santa Monica-based Foundation for Taxpayer and Consumer Rights and author of Proposition 103.

“People should be rewarded when they drive correctly.”
The Bee’s Gilbert Chan can be reached at (916) 321-1045 or [email protected]

Consumer Watchdog
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