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

Tuesday, July 11, 2006

Good Drivers Will Get $133 Million in Savings as Insurer Implements Policy Ahead of New Regulations Barring Premiums Based Primarily on ZIP Codes

LOS ANGELES, CA – Consumers Union hailed today the decision by the Auto Club of California to begin basing auto insurance premiums primarily on policyholders’ driving records rather than their ZIP code, marital status, or other factors. The announcement by the state’s fourth largest auto insurer comes shortly after Insurance Commissioner John Garamendi unveiled new regulations to implement Proposition 103’s requirement that insurers base premiums primarily on one’s driving safety record, annual mileage, and driving experience.
Garamendi’s regulations are now under review by the California Office of Administrative Law, which has until July 18 to act on them. If the regulations are cleared, insurers will have two years to fully implement the new ratemaking policies. In contrast to other major insurers who continue to protest the new regulations, the Auto Club has decided to implement the regulation ahead of schedule, with over $133 million in savings for policyholders.
“This is a major win for California’s drivers and the Auto Club,” said Mark Savage, Senior Attorney for Consumers Union. “Good drivers will win with lower premiums and the Auto Club will win by leading the competition. Other insurers will have to follow the Auto Club’s lead—both to remain competitive, and finally to bring a fair marketplace to California drivers.”
The Auto Club expects that implementing Proposition 103 and Commissioner Garamendi’s new regulation will result in premium decreases for 88 percent of its drivers, totaling $133 million, or an average decrease of $134 or 7 percent each. These lower premiums will reach good drivers across the board in urban, suburban, and rural locations. While other insurers have argued that premiums would decrease for urban drivers but increase for rural and suburban drivers, the Auto Club’s plan proves otherwise.
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.
The petition 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.
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 found that 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 the 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.
“The Auto Club has shown extraordinary leadership by breaking from the pack and demonstrating that these new rules will benefit good drivers throughout California,” said Savage. “It’s time for other insurance companies to give good drivers the break they deserve by ending ZIP code auto rates.”
For more information on this issue, see www.consumersunion.org/issues/insurance.html.
Mark Savage or Michael McCauley