ZIP Code Rating Rejected : But Gillespie Allows Auto Insurers Other Tests for Policy Pricing : Urban Rates Could Dip; Rural Go Up
Insurance Commissioner Roxani Gillespie today struck down the use of sex and marital status in pricing auto insurance, and altered use of neighborhood-based pricing, the so-called territorial rating system, to reduce urban car insurance prices.
In a wide-ranging emergency regulation issued after a month of hearings, Gillespie outlawed the use of “simple territory or ZIP code rating” in setting prices, but at the same time she allowed insurance companies to use a number of factors--such as population density, accident frequency and litigation rates--that will serve as surrogates for neighborhood-based prices.
Despite allowing the surrogate factors, the commissioner said she still believes that when companies submit new rates based on her regulations, urban prices will go down and rural and suburban prices up.
But in order to limit the resulting price increases to millions of rural and suburban drivers, Gillespie announced that she will place a cap on annual rate increases for nearly all the state’s drivers to no more than the rise of the previous year’s consumer price index.
The only exception to this would be drivers who have accidents or accumulate driving citations.
Gillespie said that in her opinion this would keep price hikes under the new system, written under the mandate of Proposition 103, to a minimum.
But she acknowledged that many insurance companies may challenge the limit of increases as an abridgement of their right to receive a fair rate of return on their auto insurance business as laid down in the state Supreme Court’s decision upholding Proposition 103 last May 3.
Gillespie said she will go before Superior Court Judge Miriam A. Vogel in Los Angeles on Dec. 18 to seek a ruling upholding the system she laid down in the emergency regulation.
She said she will tell the judge the court had protected the insurers with the fair rate of return standard, and now is the time to protect consumers with her balancing rate increase cap.
Initial reactions by both insurer representatives and consumer groups to Gillespie’s regulation were reserved. The insurers were critical and the consumer groups often said the commissioner had not gone far enough.
The cap pegged to the consumer price index would replace the current freeze on rate increases that Gillespie instituted at the beginning of October.
The commissioner--who announced Monday she was bowing out of the first race for an elected commissioner next year--gave the companies 90 days to develop a new rate structure in accord with her emergency regulation, which she said would be superseded by a permanent regulation in March.
Because of the uncertainties over how much the alterations in the territorial rating system would affect prices, it appeared that Gillespie’s order, citing the Unruh Civil Rights Act outlawing the use of sex and marital status in setting auto insurance prices, could have a more immediate dramatic effect.
