BAY AREA FIRMS RESIST INSURER’S MOVE TO BASE POLICY ON DRIVING RECORD

San Jose Mercury News (California)

Insurers for drivers in Northern California are resisting a dramatic move by a major Southern California company to change the way it sets auto policy prices. But those changes could eventually become commonplace in the Bay Area, too.

On Monday, the Automobile Club of Southern California broke from industry tradition and said it would base policy prices on how safely and how much its customers drive rather than primarily on where they live.

Insurance Commissioner John Garamendi has been pushing for that change and wants to extend it across the state later this year.

Garamendi, who joined in the auto club announcement Monday, said its move reinforces his effort to enforce Proposition 103, which was passed by voters in 1988.

His proposal, which builds on Proposition 103, requires insurance companies to weigh three main factors — a driver’s record, years of experience and how far they drive — more heavily than other factors, such as ZIP codes, when calculating premiums. The proposal could be approved by a state regulatory agency by the end of the month, said Norman Williams, a spokesman for the commissioner.

Many consumer groups have been advocating such a change.

“Californians have been waiting since 1988 for their auto insurance premiums to be based on their driving records rather than their ZIP codes,” said Douglas Heller, executive director of the Foundation for Taxpayer and Consumer Rights.

Insurance companies currently decide how much weight to give to 19 factors, which include a person’s gender and marital status.

If the proposal is approved, the three primary factors suggest that drivers who live in rural or suburban ZIP codes but have a poor record would most likely see rate increases. Those who live in densely populated areas but have good driving records would probably see rates decrease.

Consumer advocates and the industry are on opposite sides of the fence when debating whether rates would go up or down.

“It’s not a black or white thing,” said Sam Sorich, president of the Association of California Insurance Companies, which represents companies that have about 50 percent of the policies in the state. “Territory is not the only thing that is looked at. The real question is how these factors are weighted.”

Sorich and several individual insurance companies, including AAA of Northern California, said rates would go up for local policyholders if the rules changed — largely because of the lower emphasis on ZIP codes.

The association estimated that policyholders in Santa Clara County with bodily injury and liability coverage would see an average 6.8 percent rate increase. Those with comprehensive coverage, the type required when a car is not fully paid off, would see rates spike up an average of 17.3 percent, according to the association.

In Alameda, policyholders with bodily injury and liability coverage would see rates go up an average of 4 percent and those with comprehensive coverage would see rates go down an average of 5 percent, according to the association.

In contrast, the Automobile Club of Southern California estimates that 88 percent of its 1 million policyholders would see rates decrease or stay the same under the new calculations. The average policyholder will see an annual $134 decrease in rates, the club said.

The biggest rate drops would be seen in urban areas, such as downtown Los Angeles; those who will see a rate increase will be in the rural and outlying areas, said Alice Bisno, vice president of government affairs for the club.

Scott McDonald, 53, who lives in Davis and won’t be affected directly by the southern auto club’s decision, said his insurer already charges him extra for his commute several times a week to Foster City. He hopes not to pay more, especially given the high gasoline prices.

“It makes it more difficult for people who wish to remain employed in the Bay Area,” he said. “It’s like a tax increase or raising the tolls on the bridges. You’ve got to pay to play.”

Birny Birnbaum, executive director of the Texas-based Center for Economic Justice, which tracks automobile insurance issues nationwide, said many states including Connecticut, Texas and Illinois have laws restricting insurers from primarily using ZIP codes to set their rates.
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Contact Sarah Jane Tribble at [email protected] or (408) 278-3499.