Dec. 21, 2005 – In many parts of California, moving merely across the street could cause driversâ€™ car-insurance rates to go up. This is especially the case if the new address is in a zip code with an even slight increase in the percentage of black or Latino residents, a study released yesterday found.
The report comes out just days before the State Insurance Commissioner is expected to propose new insurance-rate rules that take into account citizen complaints over discriminatory pricing.
According to a Consumers Union analysis of three of Californiaâ€™s largest insurance carriers, insurers charge people with good driving records hundreds more per year in areas with predominantly Hispanic and black populations. The data reported are for State Farm, Allstate and Farmers auto coverage in 531 zip codes in 2002, and for 1838 zip codes covered by State Farm in 2004.
Consumers Unionâ€™s study used a single profile: a woman with a perfect 22-year driving record who drives a small car primarily to work. Researchers found that insurance rates jumped by as much as 83 percent between some zip codes, even in cases where the move meant only a marginal change in the neighborhoodâ€™s racial composition. Racial make-up was the only factor measured between zip codes; the study did take not take population density or other demographic factors into account.
"Insurers are penalizing many African-Americans and Latinos with good driving records by charging them higher rates just because of their zip code," Consumers Union attorney Mark Savage said in a statement announcing the study. "These disparities are due to discriminatory insurance regulations that allow insurers to base their rates primarily on where drivers live, instead of how well they drive."
The group and other consumer advocates allege that a 1988 voter-approved ballot initiative is being undermined by continued "insurance redlining" in California. Proposition 103 sets forth three specific priorities for setting automobile insurance rates in the state: driving experience, driving record and annual mileage. The law does not lay out how secondary issues like location are to be dealt with.
Insurance companies disputed the Consumers Union data as misleading and incomplete. In comments to the Los Angeles Times, Farmers Insurance spokesperson Jeff Bayer said: "Race has absolutely no place in insurance rating or underwriting decisions. It is not data that we capture."
The Association of California Insurance Companies maintains that population density and like factors are the cause for rate disparities that appear to be based on racial factors, the Associated Press reported.
"Insurance companies don't use race as part of their rating criteria," ACIC President Sam Sorcih told the AP. "The Consumers Union study is a distraction from the fundamental point that insurance companies should be using data that predicts the likelihood of losses. Territory is a significant predictor."
California State Insurance Commissioner John Garamendi is expected to announce the results of a two-year exploration of this secondary practice before the end of the year, including recommendations for changing state rate-setting regulations.