Insurers Still Favor ZIP Code Over Driving Record

Ann Brandon is an administrative law judge with a perfect driving record and a house in an affluent part of Oakland known as Rockridge.

But she pays $1,100 per year more for auto insurance than if she lived one block away, in a different ZIP Code.

If Brandon lived instead in the Southern California community of Valencia, her $2,916 annual premium would drop even lower -- to $1,338.

The variation is caused by what consumer advocates say is a loophole in California auto insurance regulations that allows insurance companies to give more weight to where a driver lives than to his or her driving record.

In the complicated mathematical formula used by insurers in calculating premiums, a weight of 24.12 was given to a driver’s ZIP Code in the 2002 rate structure, for example, but a weight of 20.04 was given to the driver’s record, according to data collected by the state and analyzed by Consumers Union, the nonprofit publisher of Consumer Reports magazine.

California Insurance Commissioner John Garamendi, who calls the system “inequitable and unfair” and has vowed to change it, is considering implementing new regulations that would force insurance companies to give less weight to a driver’s home address and more weight to the driving record.

“We got a real problem here,” said Garamendi, who has been holding public meetings on the topic throughout the state. “It’s not right.”

The effort has brought a barrage of counter-fire from the insurance industry, which opposes the proposal. The industry’s main trade organization argues that lowering premiums for densely populated areas such as Los Angeles, Oakland and San Francisco would mean higher premiums in rural areas.

Sam Sorich, president of the Assn. of California Insurance Companies, said in an interview that insurers charge more to people who live in congested urban areas because statistics show that cars in those areas are involved in more accidents. Moreover, he said, the claims in those areas tend to be more expensive to settle.

Forcing insurance companies to reduce the weight they give to a driver’s address would force insurers to charge more in suburban and rural areas, Sorich said.

Although Garamendi has not decided how the regulations should be changed, two dozen lawmakers from rural areas or smaller cities already have signed a letter opposing new rules.

“I don’t want the person who lives in the Central Valley to have their rates increased to finance a decrease for urban drivers,” said Assemblywoman Lois Wolk (D-Davis), who co-wrote the letter with Assemblyman Dave Cogdill (R-Modesto).

Wolk said she was concerned that rural and suburban communities would experience rate increases of as much as 13%, and that the commissioner’s public debate on the matter has thus far occurred solely in big cities.

“We need to have an airing of this proposal in all parts of the state,” Wolk said. “Garamendi has not yet had hearings in areas that would be adversely affected.”

Several of the legislators who signed the letter received campaign contributions from insurers, their employees and their political action committees.

Not counting donations from health insurers, Wolk received about $7,400 from insurance industry sources in the 2002-03 election cycle, according to state records. Cogdill has received about $9,000 over the last two election cycles, and another signer, Assemblyman Greg Aghazarian (R-Stockton), has received about $150,000 since 2000, according to campaign finance reports filed with the state.

Garamendi does not need the support of the Legislature to change the regulations, but he is seeking legislative support on other issues and has responded to Wolk and other lawmakers who have expressed concern. He has promised to hold hearings in rural areas.

According to a report by Robert Downer, who was hired by the industry association to study the effect of reducing the weight given to location, insurance premiums would rise for good drivers in rural and suburban areas, and go down even for bad drivers in urban areas if the regulations were changed.

Downer said he based his report on information submitted by four insurance companies, based on regulations proposed by consumer groups and several cities, including Los Angeles, to calculate new premium rates for their existing customers.

Under that formula, he said, rates would go up for 61% of drivers in the state, and down for 39% of drivers. More than half of the bad drivers in the state would see their rates go down, he said.

Insurance companies, he said, would make the same amount of money either way, even though consumers’ premium dollars would be redistributed.

Mark Savage, an attorney for Consumers Union, said it was not possible to tell how accurate the industry’s numbers are because the companies involved have not revealed the formula used for calculating the rates.

Basing so much of a driver’s premium on where he or she lives, Savage said, goes against the intent of Proposition 103, the 1988 ballot measure that regulated the way insurers set their prices.

Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights, which sponsored Proposition 103, said using ZIP Codes to determine insurance rates unfairly targets poor neighborhoods.

“The insurance industry has always pitted the urban poor against the suburban middle class,” said Court, whose organization, along with Consumers Union and the cities of Los Angeles, Oakland and San Francisco, have petitioned Garamendi to change the rules.

Court’s group and other advocates for change have called the industry practice of charging more in urban areas redlining, and said the practice discriminates against minorities and immigrants.

But Andrew Ysaino, a community activist and publisher of the Latino Times newspaper in Stockton, disputed that contention. He said that rural residents, many of them Latino immigrants, would suffer greatly if Garamendi made substantial changes. “Every so often in this state you get issues that come up that hit people in rural communities below the belt,” Ysaino said. “This happens to be one of them.”

That rural residents benefit from the current system was little solace to urban dwellers who packed a recent meeting with Garamendi in Van Nuys.

About 50 residents turned out, most of them to decry what they believe to be unfairly high insurance rates in their neighborhoods.

“It’s a travesty,” said Greta White, a retired nurse in her 70s who attended the meeting with her husband, Max Mrohs.

The couple, who live in Panorama City, own two cars, a 1985 Ford station wagon and a 2002 Hyundai. They say they have perfect driving records, yet they pay $2,500 per year for their insurance.

“Two people who have never had any problems on the road and here we are, penalized because we live in an area that is not affluent,” White said. “We can’t afford this.”

If you have a question, gripe or story idea about driving in Southern California, write to Behind the Wheel c/o Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or send an e-mail to behindthewheel@latimes.com.