Lawsuits over zip code-based auto insurance rates
March 26, 1998
In LA – Mike Qualls, Office of LA City Attorney, 213/485-6493
Mark Savage, Public Advocates, 415/431-7430
Ed Howard, Center for Law in the Public Interest, 310/470-3000
Gina Calabrese, Proposition 103 Enforcement Project, 310/392-0522
In OAKLAND – P.J. Ballard , Office of the Mayor, 510/238-7439
Marc Slavin, Office of the City Attorney, City of San Francisco, 415/554-6397
Consumers Union, 415/431-6747
LOS ANGELES and OAKLAND, CA – The cities of Los Angeles, Oakland and San Francisco joined civil rights and consumer groups today in filing two lawsuits against ZIP Code-based auto insurance rates. The suits challenge Insurance Commissioner Chuck Quackenbush’s decision to allow insurers to base auto insurance rates primarily upon where consumers live rather than on their driving record, annual mileage and years of experience, as required by Proposition 103. The plaintiffs in the cases, filed today in Alameda Superior Court in Oakland, include Consumers Union, the Proposition 103 Enforcement Project, the Spanish Speaking Citizens’ Foundation, and the Southern Christian Leadership Conference, represented by Public Advocates and the Center for Law in the Public Interest, in addition to the three cities.
Proposition 103, the auto insurance initiative passed by voters in 1988, requires three mandatory factors – driving record, number of miles driven, and years of driving experience – to be given the greatest weight in determining one’s auto insurance rates. In a press release last June, Quackenbush stated that his regulations would ensure that “rates be based primarily upon an individual’s driving record; not where they live.” However, Quackenbush issued regulations that allow insurers to give more weight to other optional factors, such as ZIP Code and gender, rather than requiring them to make the three mandatory factors most important.
Consumer and civil rights groups challenged these regulations in a hearing last fall before a Department of Insurance administrative law judge. The judge ruled against the groups, and Commissioner Quackenbush issued a decision in January to keep the regulations and the insurance companies’ unlawful rating plans in place without change.
“The Commissioner either doesn’t understand the numbers or he is misleading the public,” said Earl Lui, staff attorney with Consumers Union. “Industry sources agree with us that the numbers show beyond a doubt that companies may still use ZIP Code as the most important factor in setting rates.”
“Our case is simple: voter-enacted law should be obeyed; the will of the voters on this issue must be respected, and if the Commissioner won’t implement the will of the voters, then the courts should force him to,” said Ed Howard, executive director of the Los Angeles-based Center for Law in the Public Interest, representing the Proposition 103 Enforcement Project, the grass roots group whose leaders sponsored Proposition 103.
Quackenbush’s regulations instead allow insurers to use a statistical “sleight of hand,” Lui said, to evade Proposition 103. That law says that each factor must have a numerical “weight.” Quackenbush’s regulations, however, allow insurers to take an average of all the optional factors, rather than setting forth individual numerical weights for each optional factor. By using this averaging method, insurers are able to give a high weight to factors like ZIP Code and gender while combining them with other factors with extremely low weights. [See attached chart]. Thus, when averaged, the average weight for all optional factors could be less than any of the three mandatory factors. Nothing in Proposition 103 allows for averaging of weights to give greater importance to ZIP Code and other optional factors.
Basing rates primarily on ZIP Code, rather than driving record, has serious consequences for many drivers. For example, a young male driver would pay $1,706 for insurance from one major insurance company in San Luis Obispo. The same driver, with the identical driving record and other characteristics would pay $7,844 for insurance in South Central Los Angeles. The only difference in these two rates is ZIP Code. In Oakland, a premium in the city’s Fruitvale district would be $4,417, while in the wealthier Montclair district, the same driver would pay $3,398.
“California needs leadership from the Insurance Commissioner in ending unfair ZIP Code rating,” said Genethia Hayes, executive director of the Southern Christian Leadership Conference in Los Angeles. “It is outrageous that the same driver with the same record and the same automobile must pay thousands of dollars more for auto insurance if he or she lives in a redlined neighborhood.”
“What Commissioner Quackenbush has done is undermine the will of the people who overwhelmingly voted to enact Proposition 103 by letting the insurance companies hide the ball on their redlining practices,” said Los Angeles City Attorney Jim Hahn. “Quackenbush is letting the companies engage in voodoo mathematics, which enables them to give undue weight to ZIP Codes while still appearing to be following the provision of Proposition 103. This lawsuit is intended to force Quackenbush to put an end to that subterfuge. Insurance rates should be based on a person’s driving record, not where they live.”
“The City of Oakland has joined this litigation to see that the insurance commissioner complies with the clear dictates of state law as imposed by the voters in adopting Proposition 103 in setting automobile insurance rates,” said Oakland City Attorney Jayne W. Williams. “The city is concerned that the territorial rating plan authored by the insurance companies will push many residents of lower income neighborhoods in Oakland out of the automobile insurance market. This issue also has serious economic implications to Oakland residents and to the community as a whole.”
“It is unconscionable that ten years after Proposition 103, the insurance companies are still discriminating against people from low-income neighborhoods,” stated San Francisco City Attorney Louise Renne. “Insurance rates should be based on how you drive, not where you live. Every qualified driver should have equal access to equal rates.”
The plaintiffs expect a hearing in the case by late April or early May.