Rules setting car-insurance rates to be revisited;

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San Jose Mercury News (California)

Insurance Commissioner John Garamendi said Thursday that he would investigate claims by consumer groups and city attorneys that automobile-insurance companies in California are giving too much weight to drivers’ ZIP codes when setting rates.

Wading into an issue that has been debated for 15 years, Garamendi said he would revisit rules written by former Commissioner Chuck Quackenbush that allow companies to give significant weight to geography when deciding risk.

Garamendi is tackling the issue at the behest of the Consumers Union, the Foundation for Taxpayer and Consumer Rights and city attorneys from Los Angeles, San Francisco and Oakland, all of whom filed a formal petition with the Department of Insurance.

”There’s clearly an issue that needs to be looked at,” Garamendi said. ”It’s not appropriate for me to make a judgment, although it’s clear to me that there’s sufficient concern to accept the petition.”

The groups allege insurance companies unfairly penalize drivers — particularly the poor and minorities — by charging higher premiums because of where they live. Consumer advocates said premiums charged to motorists with identical records and backgrounds can vary by hundreds of dollars.

”Drivers in low-income, mostly minority neighborhoods pay disproportionately more for insurance,” Oakland City Attorney John Russo said at a news conference Thursday.

Russo cited an example from a years-old court case showing that a male with little driving experience and one accident would pay $4,417 a year if he lived in the blue-collar Fruitvale district of Oakland. As a resident of the more-affluent Montclair district, he would pay $3,398.

‘Why should a young man in the Fruitvale pay 30 percent more than someone in”Montclair with the same record?” he said.

Insurers argue that geography can be crucial in determining risk because it identifies areas where claims are more common, and thus more costly to companies.

”It’s been recognized by the courts; it’s a basic tenet of insurance,” said Bill Sirola, spokesman for State Farm Insurance. ”It wouldn’t be insurance without that.”

Consumer groups and insurers have been battling over the ZIP code issue since at least 1988, when voters passed the insurance reform measure Proposition 103. Consumer groups say they intended the measure to abolish geographical rate setting. Among other things, the measure requires insurers to first consider three factors when setting premiums: drivers’ safety records, their annual mileage and years of driving experience.

The measure allows insurers to look at more than a dozen secondary factors, which can be selected by the insurance commissioner.

Industry representatives repeatedly challenged Proposition 103. And in 1996, Quackenbush wrote regulations that allowed insurers to give significant weight to geographic rate setting.

Consumer groups say that some insurers are now violating the intent of Proposition 103 and giving the most weight to geography. They challenged the Quackenbush regulations in 1997, but a state appeals court upheld them, and the state Supreme Court let stand the appeals court decision in 2001.

The groups are now hoping that Garamendi, elected last year and considered consumer-friendly, will use his broad authority to rewrite the rules.

”There’s a different insurance commissioner and there’s a sense he’ll be more receptive,” said San Francisco city attorney Dennis Herrera.

Though insurance companies have never fully supported the Quackenbush rules, they would probably resist any changes proposed by Garamendi, Sirola said.

“We think it’s fair that rates reflect risk,” Sirola said. ”We think the current system, as it now stands, comes as close to reflecting real risk as you can.”

Garamendi said he would collect evidence on the issue and then hold hearings. The process could take about a year, he said.
Contact Michael Bazeley at [email protected]

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