Judge Shows Zip Code-Based Auto Insurance Rates The Road In California
A Superior Court judge in California has struck down a policy that allowed companies to base auto insurance rates primarily on a driver's ZIP Code, gender and other factors.
Judge Henry E. Needham, Jr. ruled in favor of the plaintiffs in two separate cases, one filed by the cities of Los Angeles, Oakland and San Francisco, along with Consumers Union, the Spanish Speaking Citizens' Foundation, and the Southern Christian Leadership Conference, and the other by the Proposition 103 Enforcement Project.
Proposition 103, the auto insurance initiative passed by voters in 1988, requires three mandatory factors—driving record, number of miles driven, and years of driving experience—to be given the greatest weight in determining one's auto insurance rates.
Needham ruled that California's Insurance Commissioner, Chuck Quackenbush, had violated Proposition 103 by allowing insurers to base auto insurance rates primarily upon where consumers live rather than on the three mandatory factors.
"Contrary to the requirements of Insurance Code (under Prop. 103)," Judge Needham wrote in his ruling, Quackenbush's regulation "permits insurers to use individual optional factors that have a greater impact in the determination of rates and premiums than one or more of the three mandatory factors."
Mark Savage, an attorney with Public Advocates Inc., a public interest law firm representing the non-municipal plaintiffs in the case of Spanish Speaking Citizens' Foundation v. Quackenbush, says, "The court agreed with what we've said all along: that Proposition 103 requires insurers to stop basing your auto insurance rates primarily upon where you live. We urge Commissioner Quackenbush to immediately put an end to this unfair practice."
Needham ruled that insurers were using several optional rating factors that had a greater impact on rates than the mandatory factors. Under present regulations, insurers have been able to take an average of all the optional factors, rather than setting forth individual numerical weights for each optional factor.
By using this averaging method, insurers have been able to give a high weight to factors like ZIP Code and gender while combining them with other factors with extremely low weights. Thus, when averaged, the weight for all optional factors could be less than any of the three mandatory factors.
Basing rates primarily on ZIP Code, rather than driving record, has serious consequences for many drivers, argues the Consumers Union. A young male driver would pay $1,706 for insurance from one major insurance company in San Luis Obispo. The same driver, with the identical driving record and other characteristics would pay $7,844 for insurance in South Central Los Angeles. The only difference in these two rates is ZIP Code.
"This is a resounding victory for California's drivers, especially low-income drivers," says Jose Arrendondo, executive director of the Spanish Speaking Citizens' Foundation. "The law requires drivers to have auto insurance to drive themselves to work or their children to the doctor or school. Now, Commissioner Quackenbush and insurers will have to use fair auto premiums based on driving record factors, not redlining factors such as one's ZIP Code."