Insurers Slow to Zap the ZIP Code

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A lot of drivers probably thought they were finally getting a break when then-California Insurance Commissioner John Garamendi announced in 2005 that he was requiring insurers to stop using ZIP Codes as a main factor in determining car-insurance rates.

After all, the amount you pay for coverage should depend primarily on how you drive, not where you live.

The regulatory change is finally about to come into effect — on July 14 — but the state Department of Insurance says the majority of car insurers have yet to fully comply.

As of last week, 46 insurers were in compliance, while 200 others were not.

"There are still a lot of customers seeing very dramatic increases in rates because of ZIP Codes," said Doug Heller, executive director of Consumer Watchdog in Santa Monica. The organization led the campaign against ZIP Code-based rates.

Victorville resident Aaron Mazria recently received a notice from his car insurer, 21st Century, informing him that his six-month premium was rising from $386 to $510, a 32% increase.

"I couldn’t believe it," he told me. "I’ve had no accidents, no claims, no nothing. My DMV record is completely clean."

Mazria, 60, a first-grade teacher, said he called the company to demand an explanation. The service rep at first couldn’t come up with one.

Then Mazria mentioned that his ZIP Code had switched from 92392 to 92395 a couple of years ago when the post office made some changes to accommodate growth in the community.

The service rep plugged Mazria’s old number into the computer. Up came the old rate. She plugged in the new ZIP Code. Bingo — new rate.

The changing of a single digit in his ZIP Code had resulted in a $124 rate increase.

"I told them they’re not supposed to go by ZIP Codes any more," Mazria said. "The woman at 21st Century said they could do it if they want."

She was correct. At least for another few months.

Some insurance companies, like Allstate and Geico, were relatively quick to make ZIP Codes a secondary consideration in setting rates.

Most others, like 21st Century, are dragging their feet.

Woodland Hills-based 21st Century is owned by insurance giant American International Group. Joe Norton, an AIG spokesman, pointed out that ZIP Codes are "still an approved rating factor in California."

He said the company would file revised rates with the state by the July deadline.

In 1988, California voters passed Proposition 103, which put limits on what insurers could charge for premiums. It also required that car-insurance rates be based primarily on a person’s driving record and miles driven.

Implementation of the reforms was held up for years by challenges from the insurance industry, which argued that the changes would cost it millions of dollars and unfairly discriminate against people in rural areas.

Such drivers, they insisted, should get a break on their car insurance rates because they don’t face the same road hazards as city dwellers. Hence the need for ZIP Codes as a rate-setting criterion.

Consumer activists countered that this was a sham and that insurers were just trying to use an arbitrary factor to push rates higher. The courts agreed.

Nevertheless, the implementation of Proposition 103 continued to be delayed by a succession of industry-friendly state insurance commissioners.

That changed with Garamendi, who made Proposition 103 a priority. Once the regulation was finally adopted in 2006, insurers were given a two-year grace period in which to bring their rates into compliance.

Come July, motorists will likely see a rare chance to take advantage of unusually competitive rates as insurers roll out policies that genuinely reward people with good driving records.

"I urge consumers to shop around to find the best rates for their individual needs," said Insurance Commissioner Steve Poizner.

He also encouraged people to report possible overcharges to his office. The number to call is (800) 927-4357.

In Victorville, Mazria wasted no time in finding a new insurer for his 1999 Toyota 4Runner. Rather than pay $510 to 21st Century, he switched to Geico, which charged him $311 for coverage — even less than his original policy.

Greg Kalinsky, regional vice president of Geico’s San Diego office, said that by making people’s driving records more important than their ZIP Codes, the company immediately started attracting new customers.

"By coming into full compliance with the regulations last fall, we found that we were able to save the average Geico customer an additional $150," he said.

That’s just smart business. Probably wouldn’t hurt to call your insurer and see if it’s one of the 200 others that isn’t as bright.
Consumer Confidential runs Wednesdays and Sundays. Send your tips or feedback to [email protected]

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