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Insurers Vow Battle Over Auto Rate Plan

Groups weigh challenges to a state effort to make driving records a bigger factor than ZIP Codes.

July 11, 2006|Marc Lifsher | Times Staff Writer

Major auto insurers said Monday that they would not back down from a threat to sue California's insurance commissioner over proposed new rules on how drivers' rates are set.

Associations that represent several of the state's largest insurers said they would continue to weigh legal challenges to regulations that would compel them to set rates according to Proposition 103, which mandated that motorists' safety records and driving habits should matter more than where they live.

In affirming their stance, the groups were not swayed by the announcement earlier Monday by the Automobile Club of Southern California of a new approach to assessing risks and costs. The club's plan complies with Proposition 103, nearly 18 years after voters approved it, while promising to lower rates for about 900,000 of its nearly 1 million policyholders.

"Our legal arguments stand on their own and really are based on what the courts have said that Proposition 103 requires," said Rex Frazier, president of the Personal Insurance Federation of California. "The fact that one company has taken an action doesn't really diminish those arguments."

Frazier's organization represents California's two largest auto insurance carriers -- State Farm Mutual Insurance Co. and Farmers Insurance Group -- as well as three other companies.

Sam Sorich, president of the Assn. of California Insurance Companies, which represents No. 5-ranked Allstate Corp. and several other auto insurers, said his group was considering filing suit against Insurance Commissioner John Garamendi if the regulations survived legal review.

Sorich said the proposed rules violated state insurance law because they would set rates that were arbitrary and unrelated to the risk of loss. The new rating system would unfairly raise premiums for about 60% of the state's policyholders, mainly in rural and suburban areas, and subsidize drivers in densely populated cities, which have a higher risk for accidents, he said.

That rationale does not convince Garamendi, who maintains that urban dwellers with good driving records "are penalized simply because they live in the wrong ZIP Code."

The Auto Club's decision was a victory for Garamendi, who hopes to have his new rules in place this month. The state Office of Administrative Law, which reviews regulations for technical or legal flaws, must approve or reject them by July 18.

On Monday the Automobile Club of Northern California, the state's No. 6 insurer by premiums received, said it would follow the lead of its Southern California cousin. The club, based in San Francisco, said it would change the way it calculates rates for its 1 million members once the new rules were in place.

"We are going to comply with the regulations, and we will do what we need to do to make sure our rates are competitive," spokeswoman Jenny Mack said.

Still, some insurers are unlikely to let the debate end "without at least one more try at the courts," said Brian Sullivan, editor of Auto Insurance Report, a newsletter based in Dana Point.

Insurers are not going to raise premiums drastically for fear of losing suburban and rural customers, said Birny Birnbaum, an insurance expert at the Center for Economic Justice in Austin, Texas.

"A good driver in rural areas is still going to pay less than a good driver in urban areas," he said.

Assemblyman Mark Ridley-Thomas (D-Los Angeles), who has long advocated against ZIP Code rating, welcomed the local auto club's move, saying it "is taking an eraser to the insurance red line that had been drawn around urban communities."

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