Base Car Policy Rates on Six State Regions, Commissioner Urges

Insurance Commissioner Roxani Gillespie said Thursday that she is considering establishment of a regionally based pricing system for auto insurance in an attempt to minimize huge price disparities that would result from a literal interpretation of Proposition 103.

Proposition 103 requires that--in order of importance--a driver’s safety record, annual miles driven and years of driving experience be the primary factors in pricing auto insurance. But the voter-approved measure also allows the insurance commissioner to name other rating factors to be used as well, as long as they do not influence the rate as much as any of the first three.

Broad Regional Base

Under the system outlined Thursday by Gillespie, rates would be permitted to vary only on a broad regional base, not according to ZIP codes as is now the case. One result, Gillespie said, would be much less price differentiation than exists now within Los Angeles, San Diego and other metropolitan centers. Statewide, there would be six regions.

Gillespie told a Sacramento news conference that Proposition 103 changes in pricing practices could result in often large increases in auto insurance prices for two-thirds of the state’s drivers: those in rural and suburban areas. There could be corresponding decreases for the other third: those in mostly in urban areas.

By not eliminating place of residence altogether, through implementation of the six-region system, she said she believed that these price changes would be minimized. She released charts indicating that the price changes might be on the order of 5% or 10%, rather than range as high as 45% if place of residence were removed from the rating structure.

An immediate goal of the Insurance Department is “to make certain that application of Proposition 103’s new rules for setting auto insurance rates do not actually raise premiums for millions of drivers,” Gillespie said.

But the commissioner said she has not yet made any final decision, and she called five days of public hearings beginning Aug. 14 to hear from insurance customers.

The hearings, all starting at 10 a.m., will be held Aug. 14 in the San Diego County Administration Building, Aug. 15 in the Los Angeles City Hall, Aug. 16 in the Fresno Hall of Records, Aug. 17 in the board room of the San Francisco Unified School District and Aug. 18 in the Eureka City Council Chambers.

Neighborhood-Based Pricing

Gillespie declared that were she to suppress neighborhood-based pricing completely in California as a rating factor, it would result in premium increases for 7.3 million vehicles and reductions for nearly 4 million. Only in Los Angeles, Orange and San Francisco counties would prices go down, she said. In every other county, they would go up.

Even if she were to set countywide rates, the price increases and decreases to individual drivers within a county could be unfair, she said. She issued a chart showing that in Los Angeles County, for example, a countywide rate to achieve parity could mean a 35% increase to drivers in Lancaster, 20% in Pomona and 12% in Long Beach, while it could lead to a 16% decrease to drivers in Santa Monica, 20% in Los Angeles and 35% in Beverly Hills.

So, she said, she is considering establishing the six regions: Los Angeles Metropolitan, San Diego Metropolitan, Central Valley, Eastern Rural, Central Coast Metropolitan and Northern Rural.

She issued a chart indicating that within the Central Coast Metropolitan region, the highest price increase to drivers would be 10% in San Luis Obispo and the biggest decrease would be 10% in San Francisco.

Included in the Los Angeles Metropolitan Region would be all of Los Angeles, Orange, San Bernardino, Riverside, Ventura and Santa Barbara counties. Within the San Diego Metropolitan region would be San Diego and Imperial counties. No charts showing pricing impact by locality were issued for these regions.

Gillespie suggested as another alternative that the Legislature pass a no-frills, no-fault auto policy system that would allow rates to be reduced by varying amounts everywhere, although she acknowledged that this plan does not appear likely to win passage this year.