SAN FRANCISCO, Aug. 17 /U.S. Newswire/ — State Farm — California’s largest auto insurer — announced that it will submit plans today to follow new state “good driver” regulations and cut rates by 8 percent for 93 percent of its policyholders for a total savings of $204 million. The new regulations, which the insurance industry has been fighting in court, require insurers to base premiums primarily on policyholders’ driving records rather than their ZIP code.
Late on Wednesday, the 3rd District Court of Appeal rejected an attempt by state insurers to block the rules from going into effect. The court’s ruling means that all state insurers must submit plans today indicating how they intend to follow the regulations in keeping with Proposition 103 passed by state voters in 1988.
“This is the end of the era of ZIP code profiling in auto insurance in California and the beginning of lower rates for good drivers throughout the state,” said Mark Savage, Senior Attorney at Consumers Union. “Thanks to these new common sense rules, your premiums will be based primarily on how well you drive, not your ZIP code, or your gender, or your marital status. Other states should adopt these same rules to bring relief to good drivers across the country.”
Consumers Union and the Foundation for Taxpayer and Consumer Rights, along with 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. After conducting three years of field hearings on the issue, Garamendi concluded that auto premiums based primarily on ZIP code were unfair and irrational and that insurers had manipulated their own data calculations to make the claim that rural drivers would see massive premium increases under the proposed regulations.
“It has taken 17 years but today we can declare victory in the long battle for fair auto insurance premiums,” said Harvey Rosenfield, founder of the Foundation for Taxpayer and Consumer Rights. “Now that State Farm, the state’s largest insurance company, has agreed to comply with Commissioner Garamendi’s rules and reduce premiums, other insurance companies can no longer afford to defy Proposition 103.”
In July, the state formally adopted new regulations developed by Garamendi that require insurers to base premiums primarily on one’s driving safety record, annual mileage, and years of driving experience. But insurance trade associations soon filed suit to block them. Two of the state’s biggest auto insurers — the Auto Club of Southern California and USAA — have announced that they will follow the new state regulations and cut premiums for most of their policyholders.
Over the course of Garamendi’s three years of public hearings, Consumers Union presented numerous reports documenting that ZIP- code based rates hurt good drivers throughout the state and that these rates are not cost-based. Consumers Union also found that insurers are charging good drivers in some small rural communities far more than good drivers living in some suburban and urban communities.
The original petition in support of the new regulations was filed by Consumers Union, The 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.
“Basing auto premiums primarily on where a driver lives is unfair to all Californians, but it has a particularly negative impact on the poor and communities of color,” said Oakland City Attorney John Russo. “California’s new auto regulations will help California’s working families afford the insurance coverage they are required by law to maintain.”
For more information on this issue, including research by Consumers Union showing how ZIP code-based rates hurt good drivers throughout the state, go to http://www.consumersunion.org/issues/ insurance.html.
Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization serving only the consumer. It is a comprehensive source of unbiased advice about products and services, personal finance, health nutrition and other consumer concerns. Since 1936, its mission has been to test products, inform the public, and protect consumers.
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