State Farm to End Zip-Code Based Auto Insurance Rates, Will Lower Prices for Millions of Drivers;

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State’s Largest Insurer Promises to Comply with Prop 103 Good Driver Reforms After Appeals Court Rejects Industry Challenge to Garamendi Rules

Santa Monica, CA — Nearly 18 years after California voters enacted Proposition 103, State Farm, the nation’s largest auto insurer, has agreed to follow the 1988 initiative’s rule that insurance premiums be based on driving records rather than ZIP Code. Yesterday, a California Appeals Court rejected a last-ditch effort by insurance companies to block enforcement of regulations ending ZIP Code-based premiums issued earlier this summer by Insurance Commissioner John Garamendi. Insurers must file a new pricing structure with the Department of Insurance today.

State Farm says that it will cut auto rates across the board by an average of 8% for more than 90% of its customers, for a total savings of over $200 million. Good drivers in communities that have historically been targeted with high rates based on ZIP code are likely to see larger rate cuts under the new rules.

“It has taken 17 years but today we can declare victory in the long battle for fair auto insurance premiums,” said Harvey Rosenfield, founder of the Foundation for Taxpayer and Consumer Rights. “Now that State Farm, the state’s largest insurance company, has agreed to comply with Commissioner Garamendi’s rules and reduce premiums, other insurance companies can no longer afford to defy Proposition 103.”

Prior to State Farm‘s announcement, the Auto Club of Southern California and USAA lowered rates and reconstituted their pricing system to lessen the impact of ZIP Code and focus more on drivers’ records, miles driven annually and years licensed. Under Proposition 103, these three factors must play a greater role in pricing than other commonly used factors such as a motorist’s ZIP code or marital status.

Consumer advocates predicted other insurers would have to follow these companies’ example (and the law) by implementing the new rules and cutting rates across the board. With auto insurance profits surpassing $2 billion in California in 2004 and 2005 and claims payouts falling dramatically, the insurance industry has a lot of room to lower rates, according to The Foundation for Taxpayer and Consumer Rights (FTCR).

“The law and regulations are very clear that ZIP code-based rating is ending in California,” said Pamela Pressley, FTCR’s Litigation Director. “But it is also clear that insurance company premiums are far too high and insurers must cut the fat out of the premiums they charge.”

Although it took far too long to fully implement Proposition 103, it has saved drivers and other policyholders billions since it was ruled Constitutional soon after its passage. That this final provision is now in force is proof that the will of the voters is paramount in democracy and, with determination and commitment, will trump the heavy hand of special interests, FTCR said.

In addition to celebrating this victory, FTCR acknowledged the many groups and individuals who have worked long hours toward this goal, including Consumers Union and Public Advocates. The group also praised Insurance Commissioner Garamendi for his courage to stand up to several recalcitrant insurance companies in order to end this injustice. And, FTCR noted the hard work of many of Commissioner Garamendi’s staff, including his Chief Deputy Rick Baum, General Counsel Gary Cohen and staff attorney Bryant Henley and Deputy Attorney General Bob Asperger.

“Insurance companies have spent millions on lawyers and PR consultants to block the voters’ will, but a group of government lawyers and staff, whose only obligation is to the citizens of California, worked overtime to protect the public and save consumers millions of dollars,” said Rosenfield.

The Foundation for Taxpayer and Consumer Rights is a non-profit, non-partisan organization.

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Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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