Informed Opinions on Today’s Topics : Struggle Over ZIP Codes and Insurance Cost

Where do you live? This seemingly innocuous question was the subject of intense debate this week during a Los Angeles hearing held by state insurance regulators to determine how much ZIP codes should matter in the formulation of auto insurance rates.

Proposition 103 is a 1988 state initiative approved by voters that prohibits insurers from giving residence location priority over a driver’s safety record when calculating rates. It has been the subject of a series of state Department of Insurance meetings held with local officials across the state this month.

The law, which has not been implemented, sparks controversy between consumer advocates and the insurance industry.

A state Department of Insurance staff analysis highlighting some potential impacts of Proposition 103 showed rates in high-cost areas such as Los Angeles would fall by 50% with the elimination of ZIP code considerations altogether. Rural drivers, however, would see their rates go up by 60%.

The department determined, from those figures, that Proposition 103 could penalize more California drivers than it sought to benefit.

Consumer advocates, however, attack the validity of the findings.

They state that the study misrepresents the language included in the 1988 law and that Proposition 103 called only for ZIP codes to be given less priority in rate calculations, without being totally eliminated.

The difference, the law’s supporters say, lies in earlier studies showing that insurance companies would tend to utilize ZIP code information only when determining rates for questionable drivers. Good drivers, they say, would be free of such considerations beyond their control.

The Department of Insurance set up the statewide hearings to further investigate the issue. It is expected to issue rules regarding ZIP codes later this year.

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To what extent should ZIP code information be included in auto insurance rate calculations?

Barry Cohen, broker, BC Insurance Services in Mission Hills:

“Some companies no longer use ZIP code information, but they are not necessarily the lowest rate providers. All companies prefer to operate in certain areas over others. If a company has a terrible claim experience in Northridge, for example, it will somehow get its rates to reflect that it does not want to do business in that area. But you could pick up the phone and call another company who wants more business there.”

Toby Keeler, Old Topanga homeowner:

“A person’s driving record should be the primary consideration. ZIP codes can overlap city boundaries. We have a Topanga ZIP code, but are actually in the city of Calabasas. If we had a Calabasas ZIP code, we would be paying much less in auto insurance premiums. Still, insurance companies have to determine the risks of where you live somehow. What is the alternative?”

Richard Wiebe, spokesman, state Department of Insurance:

“The primary factors concerning a driver’s record are important, but not to the exclusion of population and traffic density in certain areas. What’s being overlooked is the effect on the marketplace. If an insurance company knows that, with certain risks, it will cost more to insure in a certain area, it will not do business there.”

Jamie Court, organizing director, Proposition 103 Enforcement Project:

“This law requires that ZIP codes cannot be the primary determining factor. Your safety record, the number of miles you drive annually and your years of driving experience are all factors within your control. The intent of the law was to make sure premiums were based primarily on your driving behavior, not on the behavior of people around you.”