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home / insurance / in the media

San Jose Mercury News
Mar 12, 2001

Good driver/bad driver

Insurance rates should be based on record and experience, not ZIP code -- San Jose Mercury News Editorial
MORE than 12 years ago, California voters decided they wanted auto insurance rates to be based on individuals' driving records instead of their addresses.

It hasn't happened yet.

Instead, enforcement of Proposition 103, which voters passed in 1988, has been dragged through lengthy court battles between consumer advocates and insurance companies. Now, the state Supreme Court has a chance to step in and clear things up. We urge the court to do so.

Ironically, computer technology now enables insurers to take into account all the factors that affect the probability of future claims, and to accurately tailor a policy to an individual driver. Some big companies are already doing that for individual car models -- charging higher liability premiums to SUV owners, for example. Computer databases also mean companies could easily take into consideration the three main factors that Proposition 103 said should be given greatest weight: a driver's safety record, annual mileage and years of driving experience. Home addresses could be used, but only as a minor factor.

Yet the insurance companies cling to their old sledge hammer approach to determining premiums: ZIP codes. It's easy to figure out where most accidents occur, where most cars are stolen and where injured parties are most likely to sue. But that leads to de facto red-lining, with good drivers in poor neighborhoods paying much more for auto insurance than comparable drivers in more affluent neighborhoods.

The argument before the court is this: Which is better, charging people high or low premiums based on what their neighbors are likely to do, or on what they themselves are likely to do?

The voters in 1988 chose the latter. Unfortunately, courts haven't always agreed. When the state Department of Insurance failed to enforce Proposition 103, the cities of San Francisco, Oakland and Los Angeles went to court for their residents, who pay higher rates under current rules. An Alameda trial court agreed with the cities that those rules violate Proposition 103, but the First District Court of Appeal overturned that ruling last year. The plaintiffs are now asking the state Supreme Court to take the case.

Consumer advocates are disappointed that Insurance Commissioner Harry Low sided with his disgraced predecessor, Charles Quackenbush, in defending regulations that put home address ahead of driving record in setting insurance rates. He doesn't want the high court to take the case.

We think the court should take the case and give substantial weight to such factors as fairness and equitability for consumers, and the de facto red-lining which leads to more uninsured drivers. It's time for final action on Proposition 103.


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