State to Disclose Insurers’ Practices

The California Supreme Court ruled Monday that the state must give the public access to reports that could help determine whether the insurance industry discriminates against people in low-income communities.

In a unanimous ruling, the high court said Insurance Commissioner John Garamendi was required to release information about the policies that carriers write in different ZIP codes around the state. The ruling came in a lawsuit filed against the state by State Farm Insurance Cos., which had argued that the information was proprietary and should be kept private.

Making it public “is wholly consistent with Proposition 103’s goal of fostering consumer participation in the rate-setting process,” Justice Janice Rogers Brown wrote for the court. Proposition 103, approved by voters in 1988, overhauled the regulation of insurance companies in California and requires the state to compile annual reports on insurers’ service in low- income areas.

Monday’s ruling will permit the public to see how many auto, homeowner and commercial insurance policies are sold in low-income neighborhoods and how many companies have offices or agents there.

Consumer activists contend that the large insurance companies discourage or even prevent agents from selling policies in low-income communities, and that the lack of insurance impedes economic development.

Mark Savage, senior attorney with Consumers Union’s West Coast regional office, called disclosure “critical to ending insurance redlining in communities whose economic livelihood has been undermined by such discrimination.”

“This is a major civil rights and consumer victory that affirms the right to know,” Savage said.

Deputy Atty. Gen. Kristian Whitten, who represented Garamendi, said the ruling potentially could give activists ammunition to use against insurers that seek rate hikes.

“It allows public interest groups to evaluate whether or not insurance companies are or are not serving all the communities in California,” Whitten said.

A spokeswoman for Garamendi, who favored disclosure, said he was pleased with the high court’s decision.

Ena Alcaraz, a spokeswoman for State Farm, said the company was disappointed with the ruling but hasn’t decided whether to ask the high court to reconsider the case.

She said State Farm and other insurance companies opposed releasing the data for competitive reasons, not because the information would reveal discriminatory practices. A ZIP code is one of several factors considered in calculating an applicant’s risk, she said.

“There are laws that prohibit the whole notion of redlining, and State Farm does not practice redlining,” Alcaraz said.

Fred J. Hiestand, general council of the Civil Justice Assn., a tort reform group, also said he was disappointed with the ruling. He said the Department of Insurance lacked the resources to analyze many kinds of data, and the effect on the industry may depend on what the information shows.

“People will have to take the data that is now reported to the insurance commission and figure out what, if anything, it does show,” Hiestand said.

State Farm brought the case after the Department of Insurance inadvertently released company data to a consumer activist in 1998. State Farm contended that the data amounted to a trade secret. A trial court and the Court of Appeal both sided with the consumers against the insurance company.