Monday, April 19, 2004
Mark Savage – Consumers Union, 415-572-0039 (cell), 415-431-6747
Doug Heller – Fdn for Taxpayer & Consumer Rights, 310-480-4170
Michelle Rodriguez, Public Advocates, 415-431-7430, ext 126
Insurers Charge Higher Premiums for Drivers in Certain ZIP Codes
Dixon, CA – Millions of Californians pay higher auto insurance premiums because of the neighborhood they live in even though they have good driving records and despite the fact that Proposition 103 banned premiums based primarily on ZIP code. That is because state regulations enacted by former Insurance Commissioner Chuck Quackenbush allow insurers to base their auto premiums mostly on a policyholder’s ZIP code – and even marital status and gender – instead of their driving record.
That could change if the California Department of Insurance adopts a proposal by statewide community and consumer groups to require auto insurers to base their rates primarily on how a policyholder drives, not where they live or whether they are married.
“Allowing insurance companies to base their auto premiums primarily on ZIP codes has made insurance coverage unaffordable for many low income drivers,” said Mark Savage, Senior Attorney for Consumers Union. “That hurts all of us because it means there are more uninsured and underinsured drivers on the road. And those of us with insurance end up paying a higher ‘uninsured motorist’ premium as a result.”
Basing auto insurance premiums primarily on where a driver lives results in unfair disparities throughout California, including Assembly District 8, the site of a public meeting on the proposal organized by Assemblymember Lois Wolk. For example, a female driver with 22 years of experience and no traffic violations or accidents living in the 95616 ZIP code of Davis is charged $1,054 standard coverage by one leading insurer. But if she lived in the 95620 ZIP code of Dixon, she would pay $1,256 each year for identical coverage – a $202 or almost 20 percent increase for good drivers, merely because of ZIP code. Likewise, if this same driver lived in 94585 ZIP code of Travis Air Force Base, she would pay $1,208, but she would be charged $1,385 if she lived a few miles away in the 94533 ZIP code of Fairfield. And this same driver would be charged $1,165 if she lived in the 95695 ZIP code of Woodland, but $1,313 if she lived in the 95690 ZIP code of Walnut Grove.
Insurers have said that premiums should be lower in smaller “rural” towns because traffic density and risk of accident are lower. But when Consumers Union, the non-profit publisher of Consumer Reports, tested insurers’ premiums, the group discovered that good drivers in some small communities in Assembly District 8 and elsewhere can pay more. For example, the good driver described above would be charged $1,335 if she lived in the 94571 ZIP code of Rio Vista (city population 4,571), but $1,265 if she lived in the 95123 ZIP code of San Jose (city population 894,943). San Jose is almost 200 times larger in population than Rio Vista, yet this insurer chargers the good driver in Rio Vista $70 more.
Similarly, this same driver would pay $1,361 if she lived in the 94585 ZIP code of Suisun City (population 26,118), but $1,221 if she lived in the 92182 ZIP code of San Diego (city population 1,223,400). And if this same driver lived in the 94512 ZIP code of Birds Landing (population 140), she would pay $1,333, but $1,191 if she lived in the much larger community of Walnut Creek (city population 64,296).
“When insurance companies base their auto premiums primarily on ZIP code, the result has been unfair, even nonsensical, premiums across California,” said Michelle Rodriguez of Public Advocates. “Some small towns pay more than much bigger cities that have more traffic. This discriminatory practice is making it harder for California’s working families to afford the insurance coverage they are required by law to maintain.”
Insurance companies have not disputed these astonishing disparities in public hearings across the state. But they have claimed instead that premiums would increase for drivers in “rural” areas of California to pay for decreases in premiums in “urban” communities. On the contrary, the California Department of Insurance’s study of 11 million drivers throughout California shows that good drivers would pay less and bad drivers would pay more under the proposal. Those who drive fewer miles would pay less. Those with more years of driving experience, such as seniors, would pay less. And the study determined that premiums do not increase overall in the Central Valley, Northern California, or other places insurers call “rural” areas in order to fund decreases in Los Angeles, the Bay Area, and other “urban” areas.
The coalition filed a petition with Insurance Commissioner John Garamendi last May calling on him to require auto insurers to base their premiums primarily on the three mandatory factors spelled out in the voter-approved Proposition 103 – driving safety record, miles driven, and years of driving experience. The petition seeks 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 like marital status.
“Insurance companies used their influence over Quackenbush to subvert the will of the voters who enacted Proposition 103 fifteen years ago,” said Doug Heller of the Foundation for Taxpayer & Consumer Rights. “The voters are looking to Insurance Commissioner Garamendi to correct this injustice so that drivers who have a good safety record don’t end up paying higher premiums because of the neighborhood they live in.”
Passed by voters in 1988, Proposition 103 allowed the Insurance Commissioner to adopt regulations authorizing the use of optional rating factors for determining insurance premiums. However, the weight or importance of any optional factor an insurers use, such as ZIP code, gender or marital status, must be less than the weight of each mandatory factor in determining auto premiums.