Car insurers’ reliance on ZIP codes comes under fire

The Daily News of Los Angeles

Consumer advocates on Thursday called on the state to enforce a 1988 law meant to change the way automobile insurance rates are calculated, claiming state insurers continue to charge excess fees based on auto owners’ ZIP codes.

California motorists annually spend as much as $600 more for insurance because of where they live, with policyholders in lower-income areas generally seeing greater spikes in premiums, according to The Foundation For Taxpayer and Consumer rights.

The Santa Monica-based advocacy group was joined Thursday by the Consumers Union and the Southern Christian Leadership Conference in the effort to stop insurers from basing insurance rates on postal-address ZIP codes.

“This is a form of discrimination and it has to end,” said the Rev. Norman S. Johnson Sr., executive director of the Southern Christian Leadership Conference of Greater Los Angeles.

“The insurance industry has a history of using area underwriting — essentially the same as ZIP code rating — as a proxy for using race to screen out minority customers or charge them higher rates,” he said.

The petition will require Insurance Commissioner John Garamendi to revisit a topic that surfaced most recently in 2001. The California Supreme Court ruled at the time that auto insurance rates can continue to be based partly on where a driver resides.

The Foundation for Taxpayer and Consumer Rights cited several examples of how consumers are paying more for insurance as a result of their ZIP codes. In one instance, a married couple purchasing a liability-only policy in Woodland Hills will pay $1,356 annually, versus $799 if they lived in Thousand Oaks.

Mark Savage, a staff attorney with Consumers Union, said the new petition has a good chance of catching Garamendi’s attention, as the commissioner had agreed with such a position nine years ago. Garamendi served as California’s insurance commissioner from 1991 to 1994, though he never ruled on this particular issue.

“But because this is a new term for Garamendi, we certainly think he will grant the petition,” Savage said. “We have talked with him about the petition and he seems receptive to the idea that this is an important issue and something has to be done to benefit the consumer.”

Garamendi has 30 days to review the petition. He can then decide whether to hold a hearing to amend the regulation.

Pam Pressley, staff attorney for the foundation, said Proposition 103 already made clear it is illegal for auto insurers to base their rates primarily on where a driver lives. The proposition was approved in 1988 after auto insurance premiums soared in the early 1980s. The bill prompted more than $1 billion in premium rebates to drivers, while introducing new parameters on auto insurance prices.

A driver’s safety record, annual mileage and years of driving experience are the primary factors that determine insurance rates. ZIP codes, gender, marital status and vehicle usage are among the secondary factors that also have the ability to bolster rates.

Of State Farm‘s optional rating factors, ZIP Codes have the greatest effect on premiums.

“But all this stuff was already adjudicated in 2001. I feel like I’m in a time warp,” said State Farm spokesman Bill Sirola.

George Joseph, chief executive officer of Mercury Insurance Group, said it’s only fair to incorporate ZIP codes when factoring insurance rates.

“Congestion and the number of cars per square mile obviously can increase the likelihood of an accident,” Joseph said. “It’s not fair for people who live in more rural areas like Ventura County to pay the same premiums as someone who lives in Los Angeles.”

Pete Moraga, a spokesman for the Insurance Information Network of California, drew a parallel between purchasing insurance for a home that’s built over a fault versus one on stable ground.

“Homeowner’s insurance should probably cost more for the home that is over the fault,” he said. “And if an auto insurance policyholder resides in an area where there are more cars or even more theft, rates again are prone to go up.”
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Contact Evan Pondel at (818) 713-3662 [email protected]