Alliance Disagrees with Calif. Consumers Groups on ZIP Code Info

June 5, 2003

An effort by a coalition of consumer groups to force the Insurance Commissioner to change the way auto insurance rates are set in California is nothing more than a group of sore losers refusing to take “no” for an answer, according to the Alliance of American Insurers.

“For these groups that supposedly represent the interests of consumers to say that the use of ZIP code information as a factor in setting auto insurance rates is discriminatory and should suddenly be eliminated is ridiculous and wrong,” said Peter Gorman, vice president and western regional manager for the Alliance.

“The issue of using ZIP code data has been resolved over the years since the passage of Proposition 103. The issue has been reviewed by four insurance commissioners prior to Commissioner [John] Garamendi and litigated to conclusion in the California appellate courts. Most reasonable people would accept this as the final word.”

Gorman said that insurers use ZIP codes to determine place of residence, or territory, as one of many factors in determining rates. Proposition 103 set forth three mandatory factors used to set rates, including safety record, miles driven and years of driving experience. In addition, it allowed other factors to be adopted by the commissioner if they have a substantial relationship to the risk of loss. Among the 16 optional factors allowed is the consideration of territory, or place of residence.

“To overturn the current rating system would cause a huge displacement in rates across California, with most drivers in non-urban areas experiencing rate increases to cross-subsidize the city drivers’ higher losses due to driving in congested close quarters,” said Gorman.

“If there is something about this democratic process the Consumers Union can’t accept, they should lobby to change the laws, not force the commissioner to reopen the rule-making process.”

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