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APPEALS COURT TO TAKE UP SUIT
AGAINST INSURANCE COMMISSIONER
FOR ALLOWING ZIP CODE-BASED AUTO RATES
Zip Code Policy Means Higher Rates For
Many Low Income Drivers
SAN FRANCISCO -- On Tuesday, September 12, the
California Court of Appeal based in San Francisco will take up a
lawsuit that could bring relief to millions of low-income drivers who
pay higher auto insurance rates because of where they live. In
Spanish Speaking Citizens' Foundation v. Chuck Quackenbush, the court
will consider whether a policy allowing insurers to base their auto
rates primarily on a driver's ZIP code, gender and other factors
violates California's Proposition 103.
Passed in 1988, the proposition requires auto
insurers to base their rates primarily on three mandatory factors:
driving record, miles driven, and years of driving experience. In
1996, former Insurance Commissioner Chuck Quackenbush issued rules
that allow insurers to continue using a driver's ZIP code and other
criteria as the most important factors. This policy has meant higher
insurance rates for millions of drivers throughout California.
"Proposition 103 made it illegal for auto
insurers to base their rates primarily on where drivers live, but
these regulations still allow that," said Gail Hillebrand, Senior
Attorney for Consumers Union's West Coast Regional Office, one of the
parties that brought the suit. "If the Insurance Commissioner won't
implement the will of the voters by stopping this practice, then the
courts should force him to." In addition to Consumers Union, the
lawsuit was filed by the Proposition 103 Enforcement Project, Spanish
Speaking Citizens' Foundation, Southern Christian Leadership
Conference, and the cities of Los Angeles, Oakland, and San
Francisco.
"Twelve years after voters passed Proposition
103, insurance companies are still using ZIP codes as the single most
important factor in setting auto rates," said Mark Savage, an
attorney with Public Advocates, the law firm which is representing
the community groups in the suit. "Instead of sanctioning this
discriminatory practice the Insurance Commissioner should be working
to uphold the law."
Under Proposition 103, each factor for
determining insurance rates must have a numerical "weight." 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. A person's
driving safety record, annual mileage, and years of driving must have
the greatest importance in determining their auto premiums.
Quackenbush's regulations, however, allow
insurers to take an average of individual weights of each optional
factor, rather than setting forth individual numerical weights for
each optional factor. By using this averaging method, insurers are
able to give a high weight to factors like ZIP code and gender while
combining them with other factors with extremely low weights. Thus,
the average weight for all optional factors could be less than any of
the three mandatory factors. Nothing in Proposition 103 allows for
averaging of weights to give greater importance to ZIP code and other
optional factors.
"The Insurance Commission's regulations allow
insurers to use a statistical sleight of hand to evade Proposition
103," said Los Angeles City Attorney James Hahn. "This lawsuit is
designed to put an end to these redlining practices so that drivers
won't be forced to pay higher insurance rates just because of where
they live."
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
Fruitvale district would be $4,417, while in wealthier Montclair
district, the same driver would pay $3,398.
"Insurance rates should be based on how you
drive, not where you live," said San Francisco City Attorney Louise
Renne. "This policy violates Proposition 103 because it gives
insurance companies the green light to discriminate against people
from low-income neighborhoods."
"These redlining practices make it impossible
for many low income drivers to afford auto insurance," said Daniel
Rossi, Deputy City Attorney of Oakland. "It's time to put an end to
this policy so that drivers won't be penalized with higher insurance
rates just because of their address."
In June 1998, a Superior Court judge in Oakland
ruled in favor of the plaintiffs in two cases challenging the ZIP
code policy, one filed by the cities along with Consumers Union, the
Spanish Speaking Citizens' Foundation, and the SCLC, and the other by
the Proposition 103 Enforcement Project. The cases were then
consolidated into Spanish Speaking Citizens' Foundation v.
Quackenbush when they were appealed by the Commissioner, State Farm,
and the Farmers Insurance Company.
Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization, serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.
