Community groups, cities urge California insurance commissioner to bar auto insurance rates based mostly on zip codes (May 2003).

Petition Seeks Regulation Requiring Rates Based Primarily On How Policyholders Drive, Not Where They Live

SAN FRANCISCO, CA -- Auto insurance rates should be based primarily on how a policyholder drives not where they live, according to a petition filed today with Insurance Commissioner John Garamendi by a coalition of community and consumer groups and the cities of Los Angeles, Oakland, and San Francisco.

"Californians shouldn't be penalized with higher auto insurance rates just because of their address," said San Francisco City Attorney Dennis Herrera. "We urge Insurance Commissioner Garamendi to stop this discriminatory practice and to require auto insurers to base their rates on a policyholder's driving record not their ZIP code."

The petition calls on Insurance Commissioner John Garamendi to require auto insurers to base their rates primarily on three mandatory factors: driving record, miles driven, and years of driving experience, as is required under Proposition 103. The groups are seeking to strike down a regulation adopted by former Insurance Commissioner Chuck Quackenbush in 1996 that has allowed insurers to circumvent Proposition 103 by giving far more weight to a driver's ZIP code and other criteria.

Passed by voters in 1988, Proposition 103 allowed the Insurance Commissioner to adopt regulations authorizing the use of other optional rating factors for determining insurance premiums. However, the weight or importance of any optional factor an insurer uses, such as ZIP code, gender, or marital status, must be less than the weight of each mandatory factor in determining auto premiums.

As Insurance Commissioner in 1994, Garamendi concluded that the scheme later adopted by Quackenbush wasn't a legal method for complying with Proposition 103. The Quackenbush regulation allows insurers to report only the average of the weights of the optional factor, not the actual weights. Thus these regulations enable California insurers to continue giving ZIP code or territorial factors the greatest weight out of all the mandatory and optional factors.

"The insurance industry's practice of basing auto rates primarily on where a driver lives discriminates against California's low income and minority communities," said Norma Garcia, Senior Attorney for Consumers Union's West Coast Regional Office. "Although ZIP code rating is unfair to all Californians, it has a disproportionate impact on the poor and exacerbates the widespread problem of uninsured and underinsured drivers."

Basing rates primarily on ZIP code, rather than driving record, has serious consequences for many drivers. For example, a young male driver would pay $1,706 for insurance from one major insurance company in San Luis Obispo. The same driver, with the identical driving record and other characteristics would pay $7,844 for insurance in South Central Los Angeles. The only difference in these two rates is the ZIP code. In Oakland, a premium in the city's predominantly Latino Fruitvale district would be $4,417, while in wealthier Montclair district, the same driver would pay $3,398.

"Californians are required by law to have automobile insurance in order to drive," said Oakland City Attorney John Russo. "It is completely unfair for a driver living in a low income neighborhood in Oakland to pay 30 percent more than the same driver with the same driving record, car and coverage living in a more affluent area of Oakland."

ZIP code rating can also have a negative impact on drivers living in more rural communities. One major insurer charges drivers an annual premium of $1,234 in Grass Valley, Nevada County. But if the driver moves to Modesto, in nearby Stanislaus County, the insurer increases the premium for the same driver with the same driving record by 69 percent to $2,084. Similarly, an annual premium in Ukiah, Mendocino County is $1,367, but would go up to $1,605 for the same driver in nearby Humboldt County.

The parties filing today's petition initially sought to overturn the regulation allowing ZIP code ratings through the courts in Spanish Speaking Citizens' Foundation v. Quackenbush. A Superior Court in Oakland ruled against Quackenbush, but the Court of Appeals ultimately declined to overturn the regulation. However, the Appeals Court concluded that the Insurance Commissioner had the discretion to bar the rules adopted by Quackenbush and grant the relief the petitioners now seek.

"Proposition 103 made it very clear that insurance rates should be based on how well you drive not where you live," said Cristina Huezo, California Policy Analyst with the National Council of La Raza. "We urge Insurance Commissioner Garamendi to put an end to this unfair practice."

The petition was filed by Consumers Union; Southern Christian Leadership Council of Greater Los Angeles; Foundation for Taxpayer and Consumer Rights; National Council of La Raza; Spanish Speaking Citizens' Foundation; City of Los Angeles; City of Oakland; and City and County of San Francisco.