An 11-month study of automobile insurance in Los Angeles County released Tuesday by the California Department of Insurance found no evidence of "rip-offs" or unfair "redlining" but did note that a small number of insurers are charging rates that may be too high.
"It appears that the average insurance rates charged by the major automobile insurers are generally reasonable" when compared to what the companies pay out in claims, State Insurance Commissioner Bruce Bunner said at a news conference unveiling preliminary results of the study, which cost between $150,000 and $200,000. But, Bunner added, "very definitely there are insurers whose rates would be disproportionate" to the hypothetical rates that the department determined a company must charge to adequately pay claims in each of the county's insurance territories, usually defined by ZIP codes.
"These are companies that we will be looking at for sure to see that these rates are appropriate, and if it's inappropriate we will be taking appropriate action," Bunner said. Department officials said they are looking at fewer than six small to medium-size companies, which they would not identify.
The purpose of the study was to determine if the differences between rates in different insurance territories in the county are justified and if the high cost of car insurance in certain areas is supported by industry rate-making data, Bunner said. The study included loss data and premium volume for 1982-84 from 52 companies providing 80% of the private passenger automobile insurance in the county.
The study found no indication that insurers are "redlining" unfairly, said Everett Brookhart, the department's chief of consumer affairs.
Redlining is a practice of basing premiums primarily on where a motorist lives rather than on his individual driving record. Insurers acknowledge that rates vary among territories--a practice they prefer to call "territorial rating"--but say that the differences are based on risk and are not discriminatory.
The study uncovered "very strong justification that territorial rating differentials are warranted" by the differences in losses that insurers incur in various territories, Brookhart said. "We don't see a rip-off in some of the territories where that's been alleged."
In South-Central Los Angeles, for instance, insurers are losing 14.1% by charging an average premium of $432 while the average hypothetical cost per claim is $503, Brookhart said.
Overall, the county's insurers are losing an average of 8.6% on claims, the study found. However, that loss figure doesn't take into account investment income, which the department believes averages between 11% and 12%, Brookhart said.
The study brought few surprises, Brookhart said.
For example, the number of insured motorists is very low in outlying areas of the county but rises dramatically closer to downtown. A total of 15.33% of the county's motorists are not insured, the study concluded.
In addition, the insurers' "loss cost" is highest in Central Los Angeles and lowest in the eastern part of the county. The San Fernando Valley and western areas such as Beverly Hills and Westwood also were significantly above the average per-claim cost of $262 on a hypothetical basic policy.
The study underscored the importance of checking with more than one insurer when looking for the lowest rates, Brookhart said.
"There are a number of different companies that do write business in Los Angeles County, and the rates do vary widely," Brookhart said. "Definitely shopping around is a help."