2 Insurance Firms Accused of ‘Redlining’ : Reforms: Farmers and State Farm ‘do not serve the low-income and minority areas of Los Angeles,’ Commissioner John Garamendi tells a House subcommittee.
California Insurance Commissioner John Garamendi on Thursday accused the state’s two biggest automobile insurers, State Farm and Farmers Insurance Group, of selling far fewer policies in minority and low-income Los Angeles neighborhoods compared to sales in more affluent areas.
The companies “just don’t have agents in these communities as (they do) in other parts of the state,” he told a House subcommittee that is considering insurance reform legislation. “Our cities will rot and decay if insurance is not available to people who live there.”
His attack on the two major firms was based on an extensive computerized study of 90% of the auto insurance policies sold in the state, arranged by ZIP codes where the cars are garaged.
Posters displayed in the hearing room showed huge ZIP code maps of Los Angeles, with patches of deep red covering much of South-Central and East Los Angeles, to illustrate the low level of sales.
“The maps show redlining exists in California--particularly in Los Angeles,” said Garamendi, referring to a discredited and illegal practice of drawing a line on a map and refusing to do business in that area.
He was not accusing the firms of a formal geographic discriminatory policy, but said that their sales results amounted to the same thing: “de facto redlining.” “The truth is Farmers Insurance and State Farm do not serve the low-income and minority areas of Los Angeles,” Garamendi told the insurance subcommittee of the House Banking Committee.
State Farm, with 19.7% of statewide sales, had less than 4% of the market in the general areas of South-Central Los Angeles, East Los Angeles and Hollywood, according to Garamendi’s office. Farmers Insurance Group, accounting for 10.6% of sales in California, had less than 2% of sales in the same ZIP codes.
The companies strongly denied Garamendi’s accusation.
If Garamendi “weren’t . . . all but declaring for governor, he would honestly address the fact that until we can control the factors that are raising the cost of insurance, we won’t see a lot more policies sold to low-income families,” said John Millen, director of media relations for Farmers Insurance in Los Angeles, the biggest California-based home and auto insurer.
“You can have an agent on every doorstep, but if people can’t afford an insurance policy they aren’t going to buy it,” he said. Garamendi is “acting like there’s some sort of conspiracy, but we’re a business. If we can make a profit, we will sell it,” said Millen, noting that his company is the leading seller of property insurance in the area hit by last year’s riots.
“The problem is affordability, not availability,” said Bill Sirola, a spokesman for State Farm, based in Bloomington, Ill.
“As presently designed by the Legislature, the auto insurance policy is unaffordable to a great many people in California, not just urban areas but in rural areas,” he said.
“There is not one area in the state where we are not selling policies,” Sirola said. Neighborhood and race “have no bearing, they are not involved in any way.”
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Auto insurance prices vary widely by location, with the highest charges in some of the poorest neighborhoods. The average premium paid by a 30-year-old driver with no record of violations would be $988 in Pacific Palisades (90272 ZIP code), $848 in Inglewood (90045 ZIP code) and $1,464 in South-Central (90044 ZIP code), according to figures compiled by Garamendi’s office for the 14 biggest insurers in the state.
Garamendi’s criticisms of auto insurers were echoed by fellow regulators from Missouri and Texas.
“We should not become too caught up in whether underserved markets are occurring deliberately or whether they have somehow occurred, because the adverse impact on the public remains,” said Allene Evans, a member of the Texas Board of Insurance. “And, ultimately, if the market does not serve the needs of consumers, it will eventually wither and die.”
In other matters, Garamendi endorsed a bill being considered by the subcommittee that would provide federal regulation of foreign insurers operating in this country.
There are $20 million to $30 million in unpaid claims by property owners whose businesses were destroyed or damaged in last year’s riots, but who were insured by “scam” foreign firms, he said. “When these businesses went to collect in the wake of last spring’s disturbances, many were wiped out when they found their policies to be worthless,” he said.
