Welcome to Consumer Reports Advocacy

For 85 years CR has worked for laws and policies that put consumers first. Learn more about CR’s work with policymakers, companies, and consumers to help build a fair and just marketplace at TrustCR.org

CU applauds California for ending ZIP code-based auto insurance rates

Friday, July 14, 2006

Consumers Union Applauds New California Rules Barring ZIP-Code-Based Auto Insurance Premiums

Saying ‘Driving records not addresses should determine insurance rates,’
CU calls on other states to give drivers similar relief

SACRAMENTO, CA – Consumers Union hailed the decision today by California to adopt new regulations requiring auto insurers to base their premiums on policyholders’ driving records rather than their ZIP code, marital status, or other factors. The new rules were adopted by Insurance Commissioner John Garamendi to implement Proposition 103’s requirement that insurers base premiums primarily on one’s driving safety record, annual mileage, and driving experience. The rules received final approval today by the Office of Administrative Law. Consumers Union urged other states to follow suit.
“This is a major victory for consumers that will mean lower premiums for good and low-mileage drivers throughout the state,” said Mark Savage, Senior Attorney for Consumers Union. “California drivers finally have a chance for a fairer marketplace for auto insurance. We urge other states to adopt these same rules. Driving records, not addresses and other secondary factors, should determine auto insurance premiums.”
In May 2003, Consumers Union and a coalition of consumer and civil-rights organizations petitioned Commissioner Garamendi to strike down a regulation adopted by former Commissioner Chuck Quackenbush in 1996. The Quackenbush regulation allowed insurers to circumvent Proposition 103 by giving far more weight to a driver’s ZIP code and other criteria in determining premiums.
In the course of Commissioner Garamendi’s three years of public hearings, Consumers Union presented numerous reports documenting that ZIP code-based rates hurt good drivers throughout the state. Last December, Consumers Union issued a report that showed 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.
After the field hearings were concluded, Garamendi found that ZIP code-based rates were unfair and that insurers had manipulated their own data calculations to make the claim that rural drivers would see massive premium increases under the proposed regulations. On June 2, 2006, Garamendi adopted regulations requiring California’s insurers to base automobile insurance premiums primarily on how well one drives, not where one lives.
Under the new rules, insurers must file a plan within thirty days to implement at least 15 percent of the reduced weight for ZIP code and other secondary rating factors. Companies have up to two years to achieve full compliance, but they can implement 100 percent compliance in their first filing in August.
In contrast to other major insurers who continue to protest the new regulations, the Auto Club of Southern California announced earlier this month that it had decided to begin implementing the regulation ahead of schedule. The Auto Club, which is the fourth largest insurer in the state, said that its plan will result in premium decreases for 88 percent of its drivers, totaling $133 million, or an average decrease per driver of $134, or 7 percent. These lower premiums will reach good drivers across the board in urban, suburban, and rural locations.
“The Auto Club’s plan proves that good drivers win when insurance rates are based on driving records and not ZIP codes,” said Savage. “It’s time for other insurance companies to treat their policyholders fairly and base drivers’ premiums primarily on how well they drive, not where they live, or their gender or marital status.”
The petition to bar auto rates based primarily on ZIP codes was filed by Consumers Union, Foundation for Taxpayer and Consumer Rights, the National Council of La Raza, the Southern Christian Leadership Conference of Greater Los Angeles, Spanish Speaking Citizens’ Foundation, Public Advocates, and City Attorney John Russo for Oakland, City Attorney Dennis Herrera for San Francisco, and City Attorney Rocky Delgadillo for Los Angeles.
“ZIP-code profiling in insurance has been one of the most tenacious forms of discrimination,” said the Reverend James Lawson, President of the Southern Christian Leadership Conference of Greater Los Angeles, one of the petitioners. “For decades good drivers in Black residential neighborhoods have been charged more. Basic economic fairness should mean that my driving record, not my ZIP code, would shape by premium. This history of economic discrimination must end, and the new regulation is a long-overdue step in that direction.”
For more information on this issue, see www.consumersunion.org/issues/insurance.html.
Mark Savage or Michael McCauley: 415-431-6747