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CA insurers charge more to drivers living in Black, Latino zip codes

December 20, 2005

Commissioner Garamendi Promises To Change Regulations
That Maintain Discriminatory Practices by End of 2005

SAN FRANCISCO, CA — Insurers charge good drivers living in California’s predominantly African-American and Latino ZIP Codes substantially more for automobile insurance than good drivers in predominantly white communities, according to an analysis by Consumers Union, the non-profit publisher of Consumer Reports magazine. In some majority African-American communities, one major insurer charges good drivers an average $974 or 83 percent more for auto insurance than non minority communities.
“Insurers are penalizing many African Americans and Latinos with good driving records by charging them higher rates just because of their ZIP Code,” said Mark Savage, Senior Attorney for Consumers Union. “These disparities are due to discriminatory insurance regulations that allow insurers to base their rates primarily on where drivers live, instead of how well they drive.”
Consumers Union found that California’s three largest insurers (State Farm, Farmers, and Allstate) charged a female driver with a perfect record and 22 years of experience an average $152 or 12.9 percent more in predominantly Latino ZIP Codes, and $704 or 59.7 percent more in predominantly African-American ZIP Codes, than in predominantly non-Hispanic White ZIP Codes. (See chart and fact sheet for more detail).
Insurance rates charged in neighboring ZIP Codes throughout the state reveal this racial disparity. Farmers’ insurance rates in the adjacent Los Angeles ZIP Codes of Westchester (90045), Baldwin Hills (90056), and Inglewood (90301) illustrate the discrimination found in the study. Drivers in the predominantly African-American and Latino communities of Baldwin Hills and Inglewood pay $951 and $899, respectively, more for insurance than the same good driver pays in predominantly non-Hispanic White Westchester. Similarly, in the majority Latino 95205 ZIP Code in Stockton, good drivers pay $252 more per year than drivers in the adjacent and largely non-Hispanic White 95204 ZIP Code in Stockton.
“Until Insurance Commissioner John Garamendi fixes the system, there will remain a discriminatory racial component in California’s auto insurance rates that voters tried to get rid of in 1988 with Proposition 103,” said Savage.
Two years ago in townhall meetings across California, drivers in low-income and minority communities complained bitterly to Garamendi that they were being charged more for automobile insurance merely because of the ZIP Code in which they lived. After townhall meetings in late 2003 and early 2004, Commissioner Garamendi promised to change the regulations. “I will change the regulations. Let there be no doubt about that. There has been sufficient information given thus far in these four community previous four community hearings to convince me that the current regulations are unjust, unfair, and must change. That will happen.” (Transcript of Townhall Meeting on January 27, 2004, in San Diego, California.) Commissioner Garamendi has publicly announced that he will release his draft of a new regulation before the end of this year.
Proposition 103, enacted by the voters in 1988, requires that automobile insurance premiums be based on three mandatory factors: driving record, miles driven, and years of driving experience. Other factors are allowed, but each must have less importance than each of the mandatory factors established by the voters. However, a deceptive loophole in regulations adopted by former Insurance Commissioner Chuck Quackenbush in 1996 has allowed insurers to base automobile insurance premiums primarily on where one lives, not how well one drives.
Consumers Union’s unprecedented study documents just how egregious insurers’ discriminatory premiums are under the persisting Quackenbush regulation. Using data from insurer filings with the Department of Insurance, the group analyzed premiums charged by State Farm, Farmers, and Allstate to the quintessential good driver — a woman driving 22 years with no accidents or tickets, who uses her 1996 Acura primarily to drive to work. The study used this driver profile throughout, and calculated premiums changing only her ZIP Code.
Consumers Union then cross-referenced insurers’ premium data by ZIP Code with Census 2000 data by ZIP Code. This enabled the organization to analyze the average premiums charged good drivers in predominantly non-Hispanic White ZIP Codes, predominantly Latino ZIP Codes, and predominantly African-American ZIP Codes.
Nearly two and one-half years ago, Consumers Union and other organizations and cities petitioned Garamendi to amend the regulation and require that one’s driving safety record, annual mileage, and years of driving experience each have greater in determining one’s auto premium than any other factor such as ZIP Code, gender or marital status. On June 25, 2003, Garamendi granted the petition.
“We intend to review Commissioner Garamendi’s proposed regulation carefully to determine whether it redresses this discrimination and ensures that premiums are based primarily on how one drives just as voters intended when they approved Proposition 103,” said Savage.
In addition to Consumers Union, the other petitioners are the National Council of La Raza, Southern Christian Leadership Conference of Greater Los Angeles, Spanish Speaking Citizens’ Foundation, Foundation for Taxpayer and Consumer Rights, City of Los Angeles, City of Oakland, and City and County of San Francisco.
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Mark Savage – 415-431-6747
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.