Editorial: To get lower car insurance premiums in California, it helps to be well-off and white
If you’re a Latino or black Californian with a low-wage job and no college degree, you already have the economic deck stacked against you. And now, a survey by the Department of Insurance shows that you probably aren’t getting a discount on your car insurance that more affluent Californians get, regardless of how safe a driver and reliable a customer you may be.
The survey asked insurers across the state for data on the discounts offered to “affinity groups” — occupational and professional associations such as the California Teachers Assn., membership organizations such as Costco or the Asian Business Assn., or groups affiliated with the insurers themselves. The results suggest that the discounts, which range from 1.5% to 26%, flow to far more drivers in well-to-do parts of the state than in poorer ones.
Car insurance isn’t supposed to work that way in California. The landmark Proposition 103, which voters approved in 1988, was designed to sever the links between car insurance premiums and race, income level and neighborhood demographics. Instead, the law required that rates be based on each applicant’s risks, as measured by such factors as his or her driving record and experience and the number of miles driven per year. It also barred insurers from setting premiums that discriminate on the basis of race, ethnicity and other factors protected by state civil rights laws.
Affinity discounts are understandably popular, however, among the groups that receive them. For example, the California Teachers Assn. said in a letter to the Insurance Department, “Any curtailment to this benefit can mean less money for our hard-working educators and their families who are already paying thousands of dollars out of their own pockets to purchase school supplies and materials for students who are in need.”
That may explain why the discounts have endured despite multiple attempts over the years to eliminate them. The latest came in February, when Consumer Watchdog, the advocacy group behind Proposition 103, and 10 other organizations asked new Insurance Commissioner Ricardo Lara to adopt a rule barring affinity group discounts. The petitioners argued that insurers were using the discounts to cater to more highly educated and highly paid customers. That includes offering discounts to applicants who are lawyers, scientists, engineers, even “white-collar contractors” — but not, evidently, those who are temp workers, cashiers or burger flippers.
Lara denied the petition, opting instead to conduct the survey, gather comments and hold a hearing late last month. It has released a summary of the survey’s findings, which Lara rightly called “disturbing.”
Defenders of the system insist that affinity group discounts are based on the lower risks associated with the group’s members. But that doesn’t explain why so many of the groups are organized around higher-paying jobs, and why so many of the recipients are in wealthier neighborhoods.
The department compared the survey data with average household income statistics and found a direct relationship between a neighborhood’s income and the percentage of drivers receiving a discount. At the bottom level — ZIP Codes with per capita income of less than $22,500 — only 26% of the drivers received an affinity group discount, which ranged from 5% to 8% on average. At the top level, with per capita incomes above $50,000, 55% received the discounts.
It’s worth noting here that less than a fifth of the companies that sell auto insurance in the state reponded to the department’s request for data. Still, those companies insure well more than half of the state’s noncommercial drivers, the department said, which adds credibility to the survey results.
Even assuming that insurers aren’t intentionally trying to use these affinity groups to charge higher premiums to lower-income black or Latino drivers, the survey — just like data gathered separately by consumer groups — shows that the affinity programs as practiced in California have that effect. Insurers insist that offering the discounts does not result in surcharges on drivers who are not in an affinity group, but critics of the system say that’s the inevitable result. Regardless, it’s inarguable that the discounts enable applicants in a group to pay less than drivers with identical safety records and commuting patterns outside the groups. And the chances of you being stuck on the outside increase as your income drops. That’s just wrong.
The Department of Insurance is evaluating the information it’s gathered, and it seems likely to take some action to address the disparities caused by the affinity groups. It needs to make sure the discounts aren’t violating the spirit and anti-discriminatory letter of Proposition 103 by giving some Californians a break on premiums that those with less education or less esteemed occupations simply can’t get.
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