Insurance Rate Battle Intensifies : Underwriting: Use of ZIP codes is point of contention during public hearing by state regulators.

The long-running feud over auto insurance rates continued Tuesday as state regulators heard testimony in Los Angeles on proposals to reduce reliance on ZIP codes in setting rates.

During the hearing, Los Angeles City Councilman Mark Ridley-Thomas presented the panel with a box containing hundreds of red cards from residents in South Central Los Angeles complaining about costly auto insurance rates.

“It reflects the deeply held sentiment that too many people are being mistreated in this manner and in this state,” he said.

A recent analysis conducted by the state Department of Insurance under new Commissioner Chuck Quackenbush shows that rates in the highest cost areas of Los Angeles would fall an average of nearly 50% if a driver’s place of residence was not taken into account. Meanwhile, drivers in some rural areas could see rates skyrocket more than 60%.

“The majority of the drivers in the state will be penalized if (place of residence) is disregarded,” said Insurance Department spokesman Richard Wiebe, during a break in Tuesday’s hearing, the second of three in the state.

But consumer advocates attacked the department’s findings as a scare tactic aimed at undermining efforts to force the state to implement provisions of Proposition 103--passed in 1988--that would require insurers to focus on a driver’s safety record instead of place of residence or ZIP code when setting rates. Such practices have allowed insurers to “redline” poor and minority neighborhoods where companies don’t want to sell policies, industry critics have claimed.

Proposition 103 supporters say it does not prohibit the use of ZIP codes in setting rates--only that drivers’ safety record and annual mileage receive more weight.

“It’s an extraordinarily misleading regurgitation of insurance company propaganda,” said Jamie Court, organizing director the Proposition 103 Enforcement Project, a nonprofit consumer group based in Los Angeles, of the department’s analysis.

The analysis is an addendum to an 18-month-long study released in December by Quackenbush’s predecessor, John Garamendi, which concluded that rates statewide would see only modest changes if ZIP codes were de-emphasized.

Consumer advocates claim that Quackenbush, who received more than $2 million in insurance industry contributions during his election campaign last November, is trying to protect the industry from any financially painful changes. Earlier this year, Quackenbush turned down a petition by the Los Angeles City Council, the Los Angeles County Board of Supervisors and consumer advocates seeking the full implementation of Proposition 103. Instead, he called for further study.

Insurance Department officials said the hearings and fact-finding are necessary because of “contradictory” studies on the potential changes to the use of ZIP codes in setting insurance rates. The first of three hearings was held in San Diego on Monday, and the third one will be held next week in Sacramento. The department is expected to issue rules later this year.