City attorney’s offices in Los Angeles, San Francisco and Oakland, joined by several consumer and community groups, petitioned state Insurance Commissioner John Garamendi on Thursday to order lower auto insurance rates in urban neighborhoods.
Nearly 15 years after the passage of the insurance reform initiative Proposition 103, the groups said that the measure’s intent to base car insurance pricing more on individual drivers’ safety records than their ZIP Codes has not been enforced.
Garamendi said later in the day that he would rewrite a regulation promulgated in 1996 by then-Insurance Commissioner Chuck Quackenbush that, in effect, allowed insurance companies to continue to base their rates on where people lived.
“We accept their petition, and we will begin a series of hearings to gather information necessary to rewrite the regulation,” the commissioner said in an interview.
He noted that the courts have said his office has the authority to mandate what factors can be used, and in what proportion, by the insurers in setting rates.
The effects of what are referred to in the business as “territorial ratings” can be dramatic.
This was clear Thursday in figures cited by the proponents of change. For instance, they said, a young male driver with one accident on his record and a resulting $1,000 claim would pay $1,706 for auto insurance if he lived in San Luis Obispo, but $7,844 if he lived in South-Central Los Angeles.
An adult female driver moving just across Los Angeles from ZIP Code 90044 to ZIP Code 90045 would see her premium fall from $4,066 to $2,522.
Garamendi said that Proposition 103 was written ambiguously in this respect, and that it seems to allow ZIP Codes to be one factor among several.
The companies often have weighted various factors in such a way as to leave place of residence the dominant factor. Insurers say traffic congestion and high rates of accidents and thefts in crowded urban areas mandate higher rates in those places.
Harvey Rosenfield, the author of Proposition 103, acknowledged during the 1988 campaign for the initiative that he had been somewhat ambiguous in the language prescribing how to set rates, for fear that a clear endorsement of lower rates in urban areas could alienate voters in suburban and rural areas who might then face higher rates.
Still, Rosenfield’s attorney, Pam Pressley, said in the statement released Thursday announcing the petition: “Proposition 103 made it very clear that it is illegal for auto insurers to base their rates primarily on where a driver lives.”
Deputy Los Angeles City Atty. Don Kass, who supervises the Consumer Protection Division in his office, said Thursday that rates in the urban core “are so prohibitive” that many drivers remain illegally uninsured rather than pay them.
Garamendi noted Thursday that he had studied the issue in his first term as commissioner in the early 1990s, but he had been unable to reach a conclusion by the time he left office.