Insurance Commissioner to Examine Use of Location in Setting Auto Rates

The battle over how auto insurance rates are set in California may not be over after all.

State Insurance Commissioner Harry Low said he wants to take a “fresh look” at state regulations that allow insurers to base auto premiums in part on where drivers live.

Those regulations can result in drivers who live in large cities being charged hundreds or even thousands of dollars more for auto insurance than drivers who live in rural and suburban areas. The regulations were upheld by the state Supreme Court last week in a decision that appeared to lay the long-simmering issue to rest--much to the relief of auto insurers.

But Low said in a recent interview that he is concerned about what he called “disparities” in auto insurance premiums in California, adding, “It’s not my nature to let a problem lie and not try to do something about it.”

Low said he had set no deadlines for deciding whether he will change rates, or when. But the mere fact that the commissioner considers the matter still open to debate is dismaying to the industry.

Each time auto regulations change, “200 companies have to refile 2 million permutations of their rates--it’s very expensive,” said Dan Dunmoyer, president of Personal Insurance Federation of California, an insurance trade group.

Insurers had applauded the state Supreme Court’s decision, which let stand a lower court ruling that insurers could base premiums in part on where a driver lives. Dunmoyer called it “a major victory for good drivers in California.”

Insurers warn that tampering with current auto insurance regulations, which were formulated under former Insurance Commissioner Chuck Quackenbush, could lead to dramatically higher rates for rural and suburban drivers.

Good drivers in those areas should not have to subsidize motorists in “high-accident, high-income” parts of the state such as Beverly Hills and San Francisco, Dunmoyer said.

But consumer advocates say the current system discriminates against low-income drivers who live in urban areas.

They point to cases such as that of a young male driver paying $1,826 a year for insurance in Yuba County, while the same driver might pay nearly $1,700 more if he moved to Los Angeles, according to the state insurance department’s annual premium survey.

Advocates say Proposition 103, the state law passed in 1988, clearly requires insurance companies to base auto insurance rates primarily on a driver’s safety record, years of experience and number of miles driven, with a driver’s ZIP Code counted as a less important factor.

“It’s not an urban-rural thing, despite what [insurers] say,” said Mark Savage, managing attorney with Public Advocates in San Francisco.

Low cautioned, however, that there are significant economic and political barriers to changing how auto rates are figured.

“Three [insurance] commissioners previously tried to deal with this subject and none seems to have satisfied as many people as they might have wanted,” said Low, who was appointed last year after Quackenbush resigned in a scandal.

Low said his office is looking at auto insurance data collected over the years, including driving records and insurance rates, to see if there is a way “to decrease the disparity and bring it to as fair an application as possible.”

At the same time, Low said he is wary of changing the current system so much that insurers left the state or refused to write policies in certain areas--as happened after Proposition 103 was passed. Competition heated up again after the 1994 election of Quackenbush, who was perceived as friendly to the insurance industry.

Low would also be tackling the issue at a difficult time for insurers, as once-record profits in California have melted away thanks to rate cutting and higher claims costs, said Brian Sullivan, an independent insurance analyst in Laguna Niguel.

“It’s no longer an attractive market [for insurers] like it was five years ago,” Sullivan said.

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Premium Comparison

California drivers in urban areas tend to pay significantly higher auto insurance premiums. Here is what a 24-year-old man would pay per year in two areas of the state:

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State Farm

Marysville, Yuba County: $2,370

South-Central Los Angeles: $3,653

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Allstate

Marysville, Yuba County: $1,826

South-Central Los Angeles: $3,516

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Farmers

Marysville, Yuba County: $3,464

South-Central Los Angeles: $8,135

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Note: Chart assumes a driver with six to eight years of experience, with no tickets or violations, driving a Honda Civic.

Source: California Department of Insurance, 2000 automobile premium survey