CU praises USAA for ending zip code-based auto premiums in California


Wednesday, August 9, 2006
 

Consumers Union Praises USAA For Ending ZIP Code-Based Auto Insurance rates in California
 
CU Calls For Other Insurers to Drop Lawsuit Challenging New State Regulations
and Give Drivers Similar Relief
 
SACRAMENTO, CA – Consumers Union hailed the decision today by USAA to begin basing auto insurance premiums primarily on policyholders’ driving records rather than their ZIP code, marital status, or other factors. USAA, California’s ninth largest auto insurer, joins the Auto Club of Southern California, the state’s fourth largest auto insurer, in making the change rather than fighting new state regulations that require the practice, which other insurers are challenging in court.
“USAA should be commended for complying with the new state regulations and cutting premiums for drivers throughout California,” said Norma Garcia, Senior Attorney for Consumers Union. “Now two of California’s top ten auto insurers agree that it can be done fairly and makes good business sense. It’s time for other insurers to give good drivers the break they deserve by dropping their lawsuit and ending ZIP-code based auto rates”
USAA has said that it is cutting auto insurance premiums by an average of five percent in California, for a total of $32 million in savings for policyholders. According to the insurer, 318,000 Californians or 75 percent of its policyholders will save an average of eight percent, or more than $100 annually.
The announcement by USAA comes shortly after the state adopted new regulations requiring insurers to base premiums primarily on one’s driving safety record, annual mileage, and driving experience. Consumers Union and a coalition of consumer and civil rights organizations and three cities petitioned Insurance Commissioner John Garamendi in 2003 to make the rule change in keeping with Proposition 103. Earlier this summer, Garamendi adopted the new regulations, which benefit good and low-mileage drivers throughout California, but insurance trade associations have filed suit to block them.
 
In mid-July, the Auto Club of Southern California announced its plan to reduce rates and comply with the new rules ahead of schedule. The insurer indicated that 88 percent of its drivers would receive premium decreases totaling $133 million under its plan to implement the new regulations. The average cut in annual premiums amounts to $134 or seven percent.
On Thursday, August 10, the Sacramento Superior Court will hear arguments in American Insurance Association et al v. John Garamendi on the insurance trade association’s motion for a preliminary injunction to stop the regulations from going into effect. Under the new rules, insurers are required to submit plans on August 14 demonstrating that they are 15 percent compliant with the regulations. Insurers have two years to come into complete compliance.
“Instead of fighting these new rules in court, insurers should begin treating policyholders fairly by complying with the law,” said Garcia. “Your auto insurance premium should be based mostly on your driving record, not where you live or whether you are married.”  
The petition in support of the new regulations was filed by Consumers Union, Foundation for Taxpayer and Consumer Rights, the National Council of La Raza, the Southern Christian Leadership Conference of Greater Los Angeles, Spanish Speaking Citizens’ Foundation, Public Advocates, and City Attorney John Russo for Oakland, City Attorney Dennis Herrera for San Francisco, and City Attorney Rocky Delgadillo for Los Angeles. 
 
After conducting three years of field hearings on the issue, Garamendi concluded that ZIP code-based rates were unfair and that insurers had manipulated data calculations to make the claim that rural drivers would see massive premium increases under the proposed regulations.  On June 2, 2006, Garamendi adopted regulations requiring California’s insurers to base automobile insurance premiums primarily on how well one drives, not where one lives. 
For more information on this issue, including research by Consumers Union showing how ZIP code-based rates hurt good drivers throughout the state, see: www.consumersunion.org/issues/insurance.html.
 
Norma Garcia or Mark Savage: 415-431-6747