Insurers Testify Against Wis. Zip Code Ban Proposal

The American Insurance Association (AIA) today testified against Wisconsin SB 348, a bill that would ban zip codes as an insurance rating factor, saying it is unfair and hides the real cost of insurance.

“SB 348 prevents an insurer from localizing and more accurately placing the cost of insurance where it should be – where the claims are. This hides the true cost for insurance and is unfair and impractical,” said John Birkinbine, AIA assistant vice president, Midwest Region. “Wisconsin consumers enjoy some of the nation’s lowest rates for insurance and eliminating a proven rate factor like zip code could have negative repercussions in what is a stable, healthy market.”

Birkinbine joined an industry panel in opposition to Senate Bill 348 before the Wisconsin Senate Committee on Health, Human Services, Insurance, and Job Creation. The legislation would forbid insurance companies from using zip codes, a common and proven rating variable, and establish a rating system of “permitted factors.” There are nearly 900 zip codes in Wisconsin and more than 46,000 nationally.

“Ignoring a driver’s location does not reduce the likelihood a claim will be filed, it simply transfers the cost of that claim across the pool of all insured drivers, resulting in significantly higher premiums for good drivers in rural and ex-urban areas in order to subsidize drivers in higher risk major cities, such as Milwaukee,” added Birkinbine.

Proponents of the legislation say using zip codes is discriminatory and targets certain economic classes and minorities in the underwriting and rating process.

The AIA said that studies show that the denser the area, the more claims and accidents. According to a 2006 report by the Highway Loss Data Institute, collision and PIP claim frequencies were 39 percent higher, while property damage liability claim frequencies were 32 percent higher, in the densest zip code areas compared with the least dense areas.

Source: AIA

Topics Carriers Wisconsin