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FeedDriving the Agenda
By Rich Acello
Dumping ZIPs for records is intended to bring rate relief to drivers in populous areas like Los Angeles, San Francisco and San Diego, who often pay higher rates because they live where the largest numbers of accidents and auto thefts occur.
That kind of rate relief was the idea behind Proposition 103, passed by voters in 1988. In response, then–insurance commissioner Chuck Quackenbush issued an industry-friendly set of regulations that permitted insurers to include more than a dozen secondary factors when setting rates, including marital status, gender and whether the driver smokes. The Quackenbush regulations also gave weight to local accident and theft levels based on ZIP code. In other words, ZIPs were back in.
In August, a court approved the Garamendi regulations, which weight the rate formula according to driving record (speeding tickets and accidents), driving experience and miles driven annually. Though the regulations went into effect only in September, early returns indicate that busting the ZIP code rate formula may be having the effect envisioned by Proposition 103.
“Many insurers are not happy about this, but it’s great for consumers, becausemany of the insurers have filed rate plans that call for decreases,” says a Department of Insurance spokesman. “It appears that insurers are taking a fresh look at areas with dense populations and unusually high rates, and we believe the vast majority of all good drivers will see the benefit of the new regulations.”
OPPONENTS of the Garamendi plan say it will drive up rates in rural areas so city dwellers can pay less. A spokesman for the insurance industry says the ZIP code formula has been used by insurers because its validity is borne out in the numbers.
For insurers using a risk model, “where a person lives does play a part in [analyzing] the likelihood of a claim,” says Tully Lehman, spokesman for the Insurance Information Network, a consumer education group. “Most insurers believe there is a reason ZIP codes impact whether a claim is likely to be filed.”
Any savings contained in the rate formulas that are routinely submitted to the Department of Insurance for approval should be reflected in consumers’ upcoming auto insurance policies or renewals. Based on the rate plans, consumers with good driving records should see a reduction of about 7 percent, says a Garamendi spokesman.
In the meantime, the department is trying to sign up uninsured drivers for a low-cost auto insurance program that, for about $400, provides bare-bones liability coverage to about 3 million—15 percent of drivers—who currently are unwilling or unable to buy insurance. The exact price of the low-cost program varies by county, and San Diego is among the best buys at about $270 a year, according to Lehman.
“People struggling financially may have to choose between health and auto insurance,” says Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights in Los Angeles. “Many people risk it on the road, which is a disaster for everybody.”
To qualify for the low-cost program, a driver must make less than an amount based on the federal poverty level (about $25,000 in annual income), must be 19 or older and have been a licensed driver for three years. So far, 22 of California’s 58 counties, including San Diego, participate in the program. The insurance is delivered through the California Auto Assigned Risk Plan, which is composed of a pool of insurers.
The Department of Insurance does not have a marketing budget for the program and relies on word of mouth and Garamendi’s appearances at town halls. So far, the program has enrolled only about 25,000 of the formerly uninsured, but Heller says he’s encouraged.
“A million dollars in damage has been caused by the drivers who have signed up,” he says. “Had there not been a program, there would have been no coverage for these damages, leaving innocent drivers stuck with the bills.”
IT REMAINS TO BE SEEN how much of an impact the ZIP code rollback and the low-cost plan has on the traditional insurance agent. In Santee, Farmers agent Holly Ferrante, who has 27 years of experience, says she’s worried that busting ZIP codes may end up raising rates for some drivers.
“We won’t take a hit the way the Central Valley will,” Ferrante says, but there could be increases, “because if insurers have to even the rates out in one place, they could go up elsewhere.”
And what about that low-cost $400 program? “Assuming you had a clean driving record, and you just wanted liability, ours would be less than that anyway,” she says.
Experts agree changes in the auto insurance industry should prompt consumers to reexamine their policy needs. Generally, consumers are advised to purchase the auto insurance they think they need, but not over-purchase.
Heller says he believes the option of the low-cost program will lure low-income drivers back into the private market. “They could be on the cusp of being able to afford auto insurance,” he says, “and they’ll find, for not much more than the low-cost policy, they can get more than they thought.”
But the low-cost program is probably not for those who have assets to protect. Lehman says consumers should be aware that the liability coverage provided by the program “could be used up scratching someone’s bumper.”
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