De-Emphasis of Territorial Rating System Is Proposed : Insurance: State commissioner says the planned regulations comply with the ‘spirit and letter’ of Prop. 103.

Moving to implement one of the last uncompleted reforms of Proposition 103, California Insurance Commissioner Chuck Quackenbush on Thursday proposed new regulations meant to diminish the role that a driver’s home address plays in auto insurance rates.

Quackenbush said the proposed regulations “comply with both the spirit and letter” of Proposition 103, the 1988 insurance rate-cutting initiative, in that they force insurers to consider three factors above all others in setting rates: driving safety record, number of miles driven annually and years of driving experience.

Although the regulations should not produce wide swings in insurance prices for most drivers, Quackenbush said: “Generally, rates for safe, low-mileage, experienced drivers should go down, while rates for younger drivers and those with high mileage and/or a history of accidents or moving violations will pay more.”

Proposition 103 author Harvey Rosenfield hailed the proposed new regulations, saying: “It appears they would implement Proposition 103 correctly, and that’s something we’ve been waiting seven years for.”

However, some insurance industry representatives warned that the regulations could result in sharp premium increases for certain good drivers, particularly those with long commutes and, consequently, high annual mileage. They added that a single accident or other blemish on an otherwise good safety record could also lead to unusually large price hikes.

The new regulations will take effect upon approval by the Office of Administrative Law, a state agency to which Quackenbush submitted them Thursday. Before that, however, there will be a public hearing Dec. 1 in Los Angeles to gather testimony on their impact.

There is also the possibility that an insurance company or industry group could file suit to block the regulations.

Jerry Turem, research manager for the Insurance Department, said that the new regulations reflect Quackenbush’s search for “a way to meet the requirements of Proposition 103 and minimize dislocation in the marketplace.”

Although Turem acknowledged that some good drivers may wind up paying more, there will be many more cases of what he called “positive dislocation”--good drivers getting price breaks or bad drivers getting increases.

Another likely effect is that Los Angeles-area drivers, on average, will see a slight decrease in prices because they suffer more from the territorial rating system. Overall, Turem said, most drivers in California should see little change in their premiums.

So-called territorial rating--widely used by California auto insurers--has been a source of controversy for years, with urban drivers contending that they pay an unfairly harsh penalty for living in the city. One of the goals of Proposition 103 was to give drivers more control over the factors that influence their rates, especially driving safety record.

But insurers counter that their rate-setting formulas are calculated to emphasize those factors that have the greatest bearing on risk of loss, including not only driving record and years of experience but also the type of car, the way it used and the frequency and severity of accidents in the area where the driver lives. Any interference with these market principles results in unfair rates, they say.

The Quackenbush plan amounts to “a giant subsidy program” that would “pit old drivers against young drivers and rural motorists against city drivers,” said Barry F. Carmody, president of the Assn. of California Insurance Companies, a trade group.

Quackenbush filed his regulations with the Office of Administrative Law Thursday just as insurance industry-sponsored legislation to lock in the current rating scheme appeared headed for defeat in the Legislature.