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home / insurance / in the media

The San Luis Obispo Tribune
Jan 09, 2004

by Katherine Ann Rowlands; The Tribune

Auto rates could rise;

Bid to downplay geography would cause 25 percent increase here.
SAN LUIS OBISPO -- The cost of car insurance in San Luis Obispo County could rise by about 25
percent under a proposal being considered by state officials that would downplay where a driver lives in setting rates.

The proposal is being advocated by consumer groups and metro cities like Los Angeles and San Francisco that want to make rates more equitable statewide.

Insurance companies currently set rates based on mandatory factors such as a driver's safety record, annual miles driven and years of driving experience, as well as optional criteria such as location and marital status.

Past attempts to reduce the importance of a driver's location on rates have been mixed. State Insurance Commissioner John Garamendi is studying the proposal but it's not clear if he will act on it this year -- or at all.

A consultant who studied the potential impact of such a rate shift for four insurance firms concluded that it would be unfair to consumers in suburban and rural areas like San Luis Obispo County.

Rates would rise in places like Paso Robles (24.5 percent), Morro Bay (22.8 percent) and Arroyo Grande (27.4 percent), while those in Los Angeles County would drop (12 percent), according to Bob Downer, the consultant who authored the study based on data submitted by State Farm, Farmers, Allstate and USAA. Together the companies cover 38 percent of the market or 8.4 million drivers in California.

San Luis Obispo would be the third most adversely impacted county in the state, he said.

"It's unfair," said Downer, who until 2001 worked as the chief actuary for Farmers Insurance. "The price should reflect the cost of the product and the benefit that goes to a consumer."

Drivers who live in congested metropolitan areas have a greater risk of getting in an accident than rural drivers and therefore pay higher rates under the current system, he said. Theft rates also get figured in.

The Foundation for Taxpayer and Consumer Rights, one of the groups petitioning Garamendi for a change, counters that most consumers would see their rates altered only slightly. Bad drivers and good drivers would see the biggest increases and decreases, it claims.

"It's not geared toward providing a benefit to urban areas over rural areas," said Doug Heller, senior consumer advocate with the Santa Monica-based group. "It's to ensure that the zip code where you live is not the dominant factor in determining your rates. The basis for insurance should be your driving record and how many miles you drive."

That was the consensus of voters in 1988 who passed Proposition 103, an insurance reform initiative, he said, yet companies continue to weight location heavily when determining rates. The commissioner has discretion to change the rules, which is why Garamendi is now considering the proposal.

Mark Savage, senior attorney with Consumers Union, a national consumer advocacy group, said the point of the proposed change is to avoid penalizing a good driver just because of where she lives.

An Oakland resident in zip code 94611, for example, would pay $1,442 for a year's worth of insurance with State Farm. But if she moved a short distance to zip code 94612, her premium would increase about $400 to $1,872, according to figures Savage retrieved from the state Insurance Commissioner's Office.

"There are some reasons why you might expect cost to be a little different, but the law says your driving safety record has to have the most weight," Savage said. "You should not expect someone's rates to change dramatically just because she moves from one place to another."

The consumer groups behind the proposal also question the results of the insurance industry study because the data has not been publicly vetted so there is no way to verify the numbers or the methodology.

Garamendi is holding five informational hearings in urban areas -- and several as-yet unscheduled ones in rural areas -- to gather feedback before deciding whether to evaluate the proposal in a more formal way. The next one scheduled is Jan. 13 in Van Nuys.

Norman Williams, spokesman for the commissioner, said it is premature to speculate on whether the current proposal -- submitted in May -- or some other change is appropriate or even likely. A change would not come until next year if at all, he said.

"The interpretation of how location and other factors should be weighted has been argued for years," Williams said. "It's a work in progress."

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