Suit Targets Car Insurance Pricing Policy

The cities of Los Angeles, San Francisco and Oakland, joined by consumer and civil rights groups, sued state Insurance Commissioner Chuck Quackenbush on Thursday to end the practice of setting auto insurance rates primarily by ZIP Codes.

Displaying examples of city dwellers paying thousands of dollars more a year than suburban and rural residents with the same driving records, Los Angeles City Atty. James K. Hahn charged that Quackenbush has violated Proposition 103 in keeping that pricing system in place.

Hahn asserted that the 1988 ballot measure clearly mandates that one’s driving record, miles driven and years of driving experience be the most important factors in pricing auto coverage.

But Quackenbush, he charged, approved insurer rating plans that allow territory, or the ZIP Codes, to continue to be more important.

Quackenbush’s spokeswoman, Dana Spurrier, responded that the commissioner has moved to de-emphasize the ZIP Codes and that urban rates have fallen since last year.

“Anyone who questions the new auto rating plans enforced by Commissioner Quackenbush is questioning savings to consumers and reduced auto rates,” she said. “Auto insurance rates are down 5.5% across California and as much as 17% in urban areas.”

She gave some examples of rates going down on average in Oakland and Los Angeles, but she avoided price comparisons among cities, suburbs and rural areas. In fact, prices remain much lower outside cities and the main reason is ZIP Code pricing.

The lawsuit was filed in Superior Court in Alameda County, a heavily urban bastion where the plaintiffs believe that judges may be less disposed toward accepting the views of Quackenbush.

The ZIP Code pricing issue is an old one, far predating Quackenbush’s commissionership. Some dispassionate observers believe that the Proposition 103 provision in question is ambiguous.

Indeed, the author of the ballot measure, consumer advocate Harvey Rosenfield, acknowledged when he was campaigning for it that it was intentionally ambiguous--so as to confront the arguments of opponents that Proposition 103 would result in more rate increases than decreases.

The ambiguity occurs because, while saying the driving record, miles driven and driving experience factors should be weighted the most, in that order, Proposition 103 also allowed the use of optional factors, as long as they were not given as much weight.

What Quackenbush has done is to allow all of as many as 16 optional factors to be averaged together, and if the average weight assigned is less than that given to any of the three most important factors, then they can be used by the companies.

Hahn and other plaintiffs’ attorneys pointed out Thursday that in one company’s rating plan, ZIP Codes amounted to 34% of the pricing calculation. That was permissible, they said, only because most of the optional factors were very small.

When the 34% was averaged in with the 1% and 2% of some of the other optional factors, that brought the average so far down that it fell below each of the three “important” factors.

This bureaucratic sleight of hand allows Quackenbush to say that he has changed the system, while in fact it has stayed mostly the same, they said.

Actually, no commissioner in recent years has really tried to end ZIP Code-based pricing, faced with the political repercussions that would result from millions of drivers receiving rate increases.

Spurrier, Quackenbush’s spokeswoman, pointed out Thursday that an administrative hearing officer has already supported the validity of the commissioner’s position, and she said that she expected the courts to do so as well.

But Genethia Hayes of the Southern Christian Leadership Conference, which is joining in the lawsuit, called the matter “an issue of justice.”

The high cost of insurance in poor central city neighborhoods is a prime factor in holding people in those areas back, she said.