Use of ZIP Codes to Set Insurance Rates Kept Alive

The legal fight over a key issue of Proposition 103--whether auto insurance premiums can continue to be based on a driver’s home address--was left alive by a state Court of Appeal ruling this week.

A three-judge panel of the 2nd Appellate District declined Wednesday to overturn a 1990 lower court decision that left intact the insurance industry practice of territorial insurance ratings. The issue should be litigated in full later, the court said.

Proposition 103, approved by voters in 1988, called for insurance premiums to be based primarily on a driver’s record, miles driven and years of driving experience, rather than home address.

Insurance companies have traditionally used ZIP codes as a major factor in determining rates, and have argued that changes might lead to lower rates in urban Southern California communities while raising rates significantly in the rest of the state.

Insurance Commissioner John Garamendi, who had sought a court ruling on the territoriality issue, said the appellate decision is not necessarily a setback.

“This ruling gives a green light for us to quickly set in motion regulations on rating factors,” said spokesman Bill Schulz. “The department is going to take that action as soon as possible.”

Meanwhile, Assn. of California Insurance Cos. spokesman Bob Gore termed the appellate ruling “a small win” for insurers.

“It has no far-reaching ramifications but it essentially continues to keep the issue of geographical-based ratings alive,” Gore said.