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Press Release February 7, 2001 |
Contact: |
COMMUNITY
GROUPS, CITIES URGE CALIFORNIA SUPREME COURT
TO STRIKE DOWN ZIP CODE AUTO INSURANCE RATES
Suit
Seeks To Uphold Proposition 103's Intent That Rates Must Be Based
Primarily On How Policyholders Drive, Not Where They Live
SAN FRANCISCO, CA - Community groups and the cities of San Francisco, Oakland, and Los Angeles today filed an appeal with the California Supreme Court in their lawsuit to block insurers from basing auto rates primarily on a driver's ZIP code, gender, marital status and other factors in violation of Proposition 103. In Spanish Speaking Citizens Foundation v. Chuck Quackenbush, the groups are asking the court to strike down a regulation approved by the California Department of Insurance under former Insurance Commissioner Quackenbush. That regulation allows insurers to circumvent the law and has forced low income residents with good driving records to pay higher auto insurance rates simply because of where they live.
Passed by California voters in 1988, Proposition 103 requires auto insurers to base their rates primarily on three mandatory factors: driving record, miles driven, and years of driving experience. However, in 1996, former Insurance Commissioner Chuck Quackenbush issued rules that have allowed insurers to continue giving far more weight to a driver's ZIP code and other criteria as the most important factors.
"Proposition 103 made it very clear that it is illegal for auto insurers to base their rates primarily on where a driver lives," said Gail Hillebrand, Senior Attorney for Consumer's Union's West Coast Regional Office, one of the parties that brought the suit. "We urge the Supreme Court to uphold the will of California voters by overturning this discriminatory practice."
In addition to Consumers Union and the three cities, the lawsuit was filed by the Proposition 103 Enforcement Project, Spanish Speaking Citizens' Foundation, and the Southern Christian Leadership Conference.
"The law requires drivers to have automobile insurance to drive themselves to work or their children to the doctor or school," said Jose Arredondo, Executive Director of the Spanish Speaking Citizens' Foundation. "It is completely unfair to force 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 more affluent areas of Oakland."
"For twelve years, insurance companies have ignored Proposition 103 and used ZIP codes as the single most important factor in setting auto rates," said Mark Savage, lead counsel and Managing Attorney with Public Advocates, the law firm which is representing the community groups in the suit. "The Insurance Department's regulations are a blatant attempt to circumvent the intent of Proposition 103 and essentially sanction redlining."
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. One'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 average the weights of the optional factors, and compare the average to the mandatory factors, rather than comparing the individual numerical weights for each optional factor to the mandatory factors. By using this averaging method, insurers are able to give a high weight to factors like ZIP code and gender by 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 have allowed 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 predominantly Latino 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 gives insurance companies a green light to discriminate against people from low-income neighborhoods."
"These redlining practices have made it impossible for many low income drivers to afford auto insurance," said John Russo, 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. Last December, the California Appeals Court based in San Francisco overturned the Superior Court ruling and upheld the challenged regulations.
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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.
