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home / insurance / in the media

BestWire
Mar 22, 2001

CALIFORNIA INSURERS FIGHT FOR USE OF ZIP CODES AS UNDERWRITING CRITERIA

SACRAMENTO, Calif. (BestWire) - Insurance companies have asked the California Supreme Court not to review the use of ZIP codes in underwriting auto insurance policies.

Democratic state Sens. Martha M. Escutia and Jackie Speier and the nonprofit Foundation for Taxpayer and Consumer Rights have asked the state's highest court to review an appellate court decision that agreed it's fair for insurers to use a policyholder's location as one of the criteria considered when setting rates.

Under state law, insurers are required to base auto rates on three factors: how many miles a consumer drives; the consumer's safety record; and how many years a consumer has been driving, said Jerry Davies, a spokesman for the Personal Insurance Federation of California. However, other criteria, including a driver's location, may be used in addition to those three, Davies said.

Territory, or where a driver lives, is important in setting rates because some urban areas are more expensive, Davies said. Repairing cars and providing health care for injured drivers and passengers costs more in Los Angeles and San Francisco than in more rural areas of the state, he said.

"If you throw territory out, drivers in 51 or 58 states will see an increase in liability premiums," Davies said. "This isn't about insurers being greedy and asking for more money...this isn't an increase in the dollars collected, but a redistribution of the dollars."

For example, a driver in a rural area may pay $300 a year in premiums, while a driver in L.A. pays $700. If underwriters can't consider territory when setting rates, both drivers could wind up paying $500 a year, and the rural drivers will subsidize the urban drivers.

However, consumer groups say using ZIP codes to set rates punishes low-income urban drivers. Oakland residents can expect to pay widely varying automobile insurance premiums based solely on which ZIP code they choose to live in, according to data released March 22, 2001, by the Foundation for Taxpayer and Consumer Rights and the Ralph Nader-inspired citizen activist organization, the Oaks Project.

Literally by just crossing the street from Oakland's Piedmont/Montclair District to the Temescal District , motorists can expect a jump in their premiums of up to 30%, the consumer groups said in a statement.

Davies said the consumer group only checked with one auto carrier to find that price difference.

"There are over 200 auto insurers in the state," Davies said. "If you don't like the rate with one, you could shop and find a better rate."

If the Supreme Court declines to consider the case, the lower court ruling will stand and insurers will be able to continue to use ZIP codes when setting auto rates. The Supreme Court is expected to decide whether or not to formally consider the issue within the next several weeks.

The top three personal auto writers in California according to 1999 premiums are State Farm Group, Farmers Insurance Group and California State Auto Group, according to A.M. Best Co. data.

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