Consumer Group Plans Lawsuit to Invalidate ZIP Code-Based Rating
Consumer groups attacked a decision by Insurance Commissioner Chuck Quackenbush that the auto rating plans of three major insurers complied with Proposition 103‘s good driver provisions. The Proposition 103 Enforcement Project, the consumer group that called for hearings on the rating plans of Allstate, State Farm, and Farmers, announced its intent to sue the Commissioner in Superior Court for reversal of the decision.
Under Proposition 103, the auto insurance reform initiative approved by the voters ten years ago, insurance rates must be based primarily on three mandatory factors: driving safety record, annual mileage driven, and years of driving experience. Rather than enforce the system mandated by Proposition 103, Quackenbushís decision allows insurers to base rates primarily on a driverís ZIP code, rather than his or her driving record. Because all insurance companies in the state are using the same methodologies in their class plans, the decision affects all automobile policyholders.
“Commissioner Quackenbush has double-crossed consumers,” stated Gina Calabrese, Senior Counsel for the Proposition 103 Enforcement Project. “In an attempt to appear pro-consumer, he adopted regulations to implement the good driver provisions of Proposition 103, and promised to faithfully implement them to reduce rates for all good drivers. Instead, he’s allowed insurance companies to evade the rules through statistical manipulation.”
The decision contradicts statements Quackenbush made in an October 1997 press conference. At that time, he assured consumers that he had “completely changed the rules [for] the way that the premiums are put together.” And, in the following statements, he specifically represented that ZIP code would no longer be the primary determinant:
- We have completely de-emphasized location as a major factor….[W]ith the elimination of ZIP-code as a rating criteria, itís gonna have less and less relevance.
But the Project, joined in the hearing by Consumers Union and the Southern Christian Leadership Conference, say that the plans maintain the old ZIP-code based system. Even insurance industry observers agree with the Project. In an article entitled, “It (Still) Goes With the Territory,” the insurance trade publication, Insurance Week, stated, “Despite claims to the contrary made by Quackenbush‘s press office, the Enforcement Project is correct.” Insurance Week, October 27, 1997. Auto Insurance Report stated, “Our analysis, confirmed by insurers and reported by newspapers throughout the state, shows that territory remains the most important factor, followed by driving record, miles driven, and years of driving experience, the three ‘mandatory factors’ called for in Prop. 103.” Auto Insurance Report, November 17, 1997.
“Commissioner Quackenbush has given insurers the green light to continue their arbitrary and discriminatory system of basing insurance rates on where a driver lives, rather than on her driving record,” explained Calabrese. “Once again, he has proven himself to be the insurance industryís footsoldier.”
The Projectís lawsuit will not only challenge the rating plans, but also some procedural irregularities that occurred during the hearing. For example, Quackenbush hand-picked one of his own deputies to sit as the administrative law judge on the case. This contrasts with the Department’s customary practice of deferring the assignment of an administrative law judge to the Administrative Law Bureau, to assure a degree of independence. “By taking further legal action, the Project fully intends to expose the ruse that the Commissioner and his kangaroo court have perpetrated on Californiaís beleaguered motorists,” concluded Calabrese.
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