Less ZIP in Auto Rates

California Insurance Commissioner Chuck Quackenbush characterized his new auto insurance rating system as a “cost-saving victory for consumers.” Victory? Yes, but it could and should have come sooner. It’s been nine years since California voters approved Proposition 103, which requires insurers to give precedence to a driver’s record, miles driven and years of experience over place of residence in setting insurance premiums.

And while Quackenbush claims that the new rates will save Californians $361 million in the first year, not all drivers will share in those savings. Furthermore, the rates do nothing to deliver insurance to thousands of drivers in the state who simply cannot afford it. The rules took effect Wednesday, but insurance companies won’t be billing at the new rates until policy renewal time, yet another delay.

Implementation of Proposition 103 has been stalled by a complicated and lengthy process of legal challenges and the political clout of insurance companies in Sacramento.

Quackenbush, who was elected in 1994, is the first state insurance commissioner to promulgate formal rules to implement provisions of the 1988 initiative, but he has been widely criticized for moving slowly. His critics say he favors the industry, which contributed $6 million to his election.

His predecessors, John Garamendi and Roxani Gillespie, resorted to temporary emergency rules to adjust rates, but they fell short.

Under the program approved by Quackenbush, premium reductions statewide will range from 11.7% with State Farm General to 1% with the Mercury Group, with a number of major insurers between. The commissioner said some rates in central Los Angeles will drop 40% to 50% because the premiums are disproportionately high in areas deemed risky under the much criticized ZIP Code rating system, which essentially redlined some motorists. These territorial ratings will be de-emphasized under the new rules.

The bad news is that some good drivers in other parts of the state will end up paying more to support the new rate structure. The devil will be in the details. The Proposition 103 Enforcement Project maintains that the plans do not go far enough in eliminating residency as a factor in pricing.

The delay in official compliance with Proposition 103 has cost consumers plenty. Quackenbush’s decision to bring it on line is noteworthy if belated. When those renewal notices start coming in the mail we’ll hear the driving public’s appraisal.