Commissioner Garamendi Scheduled to Issue New Rules Governing Auto Insurance Premiums By End of Year
Santa Monica, CA — Insurers charge good drivers living in California’s predominantly African-American and Latino ZIP Codes substantially more for automobile insurance than good drivers in predominantly White communities, according to an analysis by Consumers Union, the non-profit publisher of Consumer Reports magazine. In some majority African-American communities, one major insurer charges good drivers an average $974 or 83 percent more for auto insurance than non-minority communities.
In 1988, voters enacted Proposition 103, which requires auto insurance rates to be based primarily on a motorists driving record, not primarily on their ZIP Code. Commissioner John Garamendi has said that he will issue new rules to address the continued problem of ZIP Code discrimination by December 31.
“Seventeen years ago voters demanded that insurance rates be based on how you drive, not where you live or what you look like, but this study shows that discrimination by auto insurers is still rampant,” said insurance reform Proposition 103 author Harvey Rosenfield. “Voters are still waiting for the lower rates and fairer system that they enacted but insurers and politicians have blocked.”
Consumers Union found that California’s three largest insurers (State Farm, Farmers, and Allstate) charged a female driver with a perfect record and 22 years of experience an average $152 or 12.9 percent more in predominantly Latino ZIP Codes, and $704 or 59.7 percent more in predominantly African-American ZIP Codes, than in predominantly non-Hispanic White ZIP Codes. Download the chart and more detailed data.
Insurance rates charged in neighboring ZIP Codes throughout the state reveal this racial disparity. Farmers‘ insurance rates in the adjacent Los Angeles ZIP Codes of Westchester (90045), Baldwin Hills (90056), and Inglewood (90301) illustrate the discrimination found in the study. Drivers in the predominantly African-American and Latino communities of Baldwin Hills and Inglewood pay $951 (66%) and $899 (62%) more, respectively, for insurance than the same good driver pays in predominantly White Westchester. Similarly, in the majority Latino 95205 ZIP Code in Stockton, good drivers pay $252 more per year than drivers in the adjacent and largely non-Hispanic White 95204 ZIP Code in Stockton.
Two years ago in townhall meetings across California, drivers in low-income and minority communities complained bitterly to Garamendi that they were being charged more for automobile insurance merely because of the ZIP Code in which they lived. After townhall meetings in late 2003 and early 2004, Commissioner Garamendi promised to change the regulations. “I will change the regulations. Let there be no doubt about that. There has been sufficient information given thus far in these four community — previous four community hearings to convince me that the current regulations are unjust, unfair, and must change. That will happen.” (Transcript of Townhall Meeting on January 27, 2004, in San Diego, California.) Commissioner Garamendi has publicly announced that he will release his draft of a new regulation before the end of this year.
“The challenge before Commissioner Garamendi is whether to end the lingering racism in our auto insurance system or let it linger for another decade,” said Douglas Heller, Executive Director of the Foundation for Taxpayer and Consumer Rights. “With the stroke of a pen, Commissioner Garamendi can put an end to unnecessarily high premiums paid by millions of good drivers in California.”
Proposition 103, enacted by the voters in 1988, requires that automobile insurance premiums be based on three mandatory factors: driving record, miles driven, and years of driving experience. Other factors are allowed, but each must have less importance than each of the mandatory factors established by the voters. However, a deceptive loophole in regulations adopted by former Insurance Commissioner Chuck Quackenbush in 1996 has allowed insurers to base automobile insurance premiums primarily on where one lives, not how well one drives.
The Study’s Methodology
Consumers Union’s unprecedented study documents just how egregious insurers’ discriminatory premiums are under the persisting Quackenbush regulation. Using data from insurer filings with the Department of Insurance, the group analyzed premiums charged by State Farm, Farmers, and Allstate to the quintessential good driver — a woman driving 22 years with no accidents or tickets, who uses her 1996 Acura primarily to drive to work. The study used this driver profile throughout, and calculated premiums changing only her ZIP Code.
Consumers Union then cross-referenced insurers’ premium data by ZIP Code with Census 2000 data by ZIP Code. This enabled the organization to analyze the average premiums charged good drivers in predominantly non-Hispanic White ZIP Codes, predominantly Latino ZIP Codes, and predominantly African-American ZIP Codes.
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