Insurer: ZIP codes vital to fair rates;

Published on


San Jose Mercury News (California)

If there are more cars per square mile in San Jose than Palo Alto, George Joseph would wager that there are more crashes in San Jose.

It’s among the reasons why Joseph, chief executive of Mercury Insurance, thinks insurance companies should be able to charge different rates for insurance to people in different ZIP codes — even if their driving records are identical. That kind of ZIP code-based pricing is being phased out today in California, and Joseph wants to prevent that from happening by using the November ballot.

Joseph’s proposed initiative is one of three that insurance industry advocates have filed to give insurers far more freedom to raise rates without regulators’ approval as well as make rates less dependent on a driver’s record.

The initiatives would also repeal large sections of Proposition 103, the 1988 ballot initiative that changed the landscape for auto insurance in California.

Under Proposition 103, insurers must use three primary factors to determine rates: a driver’s safety record, annual mileage and driving experience.

If they succeed in changing the law, the insurance industry would be able “to use anything they want to justify any rating factor they wish to use,” said Harvey Rosenfield, the author of Proposition 103 and founder of the Foundation for Taxpayer and Consumer Rights.

Quackenbush policy

ZIP code-based pricing has been the norm in California since 1996, when former Insurance Commissioner Charles Quackenbush allowed the practice. John Garamendi, the current commissioner, announced in December that new regulations would prohibit the practice and abide by the intent of Proposition 103.

The practice of ZIP code pricing had led to findings by consumer groups that Palo Alto drivers are charged hundreds of dollars less than San Jose drivers. Those living in predominantly black and Latino neighborhoods also found themselves paying higher rates than those in white neighborhoods, according to a study released two weeks ago by Consumers Union, a San Francisco-based group. Gender and marital status matter more on some policies than accident history, the study found.

“It’s grossly unfair,” Garamendi said. Rates should be “about how you
drive,” he said.

Industry leaders say their methodology is based on fact, and that consumers will benefit.

The initiatives are being pushed by a number of different companies, Joseph said. One of the three proposed initiatives is his. The other initiatives go further than Joseph’s in calling for greater revisions of Proposition 103.

Joseph said his only intention was to allow rate increases based on actuarial data. ZIP codes can show trends, Joseph said, in the percentage of claims filed. Joseph also said the density of cars can play a big difference in why rural areas are charged less than urban areas.

Joseph said there was no financial motive in his ballot initiative, which he intends to qualify for the November ballot.

“It’s not a profit motive,” he said. “It’s a fairness motive. If you’re going to have discounts at all, then a discount that’s actuarially sound should be allowed. We don’t have any problem in any other state. What makes it fair in Texas and Florida, and not in California?”

Garamendi and others said those claims were not believable.

Who would benefit?

“Anybody that believes that the insurance industry is going to change this law for the benefit of consumers is dreaming,” said Garamendi. “The insurance industry is going to change this law for the benefit of the industry.”

Joseph’s initiative also eliminates the need for insurance commissioner approval for rate decreases of less than 7 percent.

Garamendi said that, too, is a Trojan horse. Though decreases seem to be a good thing, they sometimes aren’t as good as they should be. His office reviews decreases because companies are legally prohibited from excessively profiting off insurance. He said rate decreases often don’t go far enough.

Contact Matthai Chakko Kuruvila at [email protected] or (408)

Consumer Watchdog
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