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Insurers sue to block premium reductions for good drivers in CA

Thursday, July 20, 2006

Consumers Union says insurance industry lawsuit challenging California auto insurance regulations should be rejected
New Auto Insurance Rules Will Benefit Good Drivers Across California

SACRAMENTO, CA – A lawsuit filed by the insurance industry late on Wednesday challenging new state auto insurance regulations should be rejected, according to Consumers Union. The new rules are supported by Consumers Union and a coalition of consumer and civil-rights organizations because they will end discriminatory industry practices and lower premiums for good drivers throughout the state.
“This lawsuit is just the latest attempt by insurance companies to maintain unfair practices that penalize good drivers with higher premiums just because of their ZIP code,” said Norma Garcia, Senior Attorney for Consumers Union. “Insurers should stop standing in the way of reforms that restore fairness to the marketplace and benefit good drivers across California.”
The lawsuit was filed in Sacramento Superior Court by three insurance industry trade groups – American Insurance Association, Association of California Insurance Companies and Personal Insurance Federation of California. It seeks to block regulations that were adopted to implement Proposition 103’s requirement that insurers base premiums primarily on one’s driving safety record, annual mileage, and driving experience rather than such factors as ZIP code.
In May 2003, Consumers Union and a coalition of consumer and civil-rights organizations petitioned Insurance Commissioner John 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 showed how auto premiums based mostly on ZIP code hurt good drivers throughout the state:
Across California, Consumers Union found that insurers’ practice of basing auto premiums primarily on ZIP code causes the same good driver with the same car, same mileage and same coverage to pay wildly fluctuating premiums, merely because of ZIP code. Annual premiums for a good driver licensed 22 years with no accidents or violations can swing $891 or 87 percent from one ZIP code to another in the San Francisco Bay Area; $721 or 55 percent from one ZIP code to another in Los Angeles; and $757 or 75 percent from one ZIP code to another in the Central Valley.
Insurers are charging good drivers in small rural communities far more than good drivers living in suburban communities. For example, the premium for this good driver in Chinese Camp 95309 in Tuolumne County (pop. 146) is 11-38 percent higher than her premium in the affluent communities of Palo Alto 94301 in Santa Clara County (pop. 58,598), Concord 94519 in Contra Costa County (pop. 121,780), Torrance 90503 in Los Angeles County (pop. 137,946), Long Beach 90815 in Los Angeles County (pop. 461,522), and San Diego 92111 (pop. 1,223,400).
Insurers are charging 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 as much as an average $974 or 83 percent more.
After the field hearings were concluded, Garamendi found that premiums based primarily on ZIP code 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. Garamendi adopted regulations requiring California’s insurers to base automobile insurance premiums primarily on how well one drives, not where one lives, which received final approval by the Office of Administrative Law on July 14.
Earlier this month, the Auto Club of Southern California announced that it would implement the regulations 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 premiums are based mostly on driving records and not ZIP codes,” said Garcia. “Instead of trying to thwart the will of the voters with this lawsuit, insurance companies should begin treating their policyholders fairly by basing drivers’ premiums primarily on how well they drive, not where they live, or their gender or marital status.”
The petition to bar auto premiums 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.
For more information on this issue, see www.consumersunion.org/issues/insurance.html.
Contact: Norma Garcia or Michael McCauley 415-431-6747