The 1st District Court of Appeal in San Francisco has reversed a 1998 trial-court ruling that said insurers shouldn’t base automobile insurance premiums on where car owners live and drive.
Territorial ratings are in use throughout the United States, but consumer advocates in California had sought to lower auto insurance rates for urban drivers by forcing insurers to use an individual driver’s record and number of miles driven to set rates. The case was based on Proposition 103, a ballot initiative in 1988 that sought to rein in auto insurance premiums.
The panel of judges ruled that “unrefuted evidence establishes that territory is a more important determinant of the risk of loss than any other single factor.”
“There’s no question that where you live affects how much it costs to insure your car,” said Candysse Miller of the Insurance Information Network of California, an insurance industry trade group based in Los Angeles. “If you’re in the middle of Los Angeles, you’re far more likely to be involved in an accident, sued or have your car stolen than if you live in the suburbs.”
The Santa Monica, Calif.-based Foundation for Taxpayer and Consumer Rights, whose president, Harvey Rosenfield, authored Proposition 103, vowed to appeal to the California Supreme Court.
Rosenfield said Prop 103 has delivered $ 1.2 billion in refunds and has prevented more than $ 20 billion in rate increases. He called on Harry Low, California’s new insurance commissioner, to join in the appeal.
This isn’t the first time insurers’ ZIP-code data has been the center of controversy. A Texas consumer group, the Center for Economic Justice, has been battling since 1997 for access to information found in quarterly market reports filed by auto insurers with the Texas Department of Insurance. The reports include information, such as the number of vehicles insured and how much premium is collected from drivers in the state, broken down by ZIP code. The center wanted to use the information as proof that insurance companies were avoiding selling policies to minorities and low-income residents. The consumer group prevailed against Nationwide Insurance Co. and is still waiting for court decisions concerning State Farm and other insurers.
“It’s a critical ruling for auto insurance consumers in California,” said Bill Sirola, a spokesman for State Farm Insurance Group in Sacramento. “After 12 years, this ruling seems to indicate that it will put the doubts behind us and assure stability in the insurance market in the coming years.”
State Farm, which was a party in the court case, ranked as the top writer of auto insurance in California in 1999 with $ 15.18 billion of direct premiums and 12.7% of the market, according to A.M. Best Co. data. Los Angeles-based Farmers Insurance Group ranked second with 12.1%.
Sirola said barring ZIP codes as a rating factor would have forced drivers in rural counties to subsidize drivers in Beverly Hills and San Francisco. Insurers would have had to sell at a loss in high-population centers and “vastly overcharge” in other areas, he said.
Jamie Court of the Foundation for Taxpayer and Consumer Rights said Prop 103 allows ZIP codes to be a determinant in auto rates, but not the primary one. He suggested that it be No. 4 in a system that gives the most weight, in descending order, to driving record, years of driving experience, miles driven annually and ZIP code. The weighting would be for the insurance commissioner to determine, he said.