New System for Determining Auto Insurance Rates Backed

A state agency approved plans Friday to base auto insurance rates largely on drivers' safety records and experience, and not on where they live.

The state Office of Administrative Law ruled that rating formulas proposed by state Insurance Commissioner John Garamendi complied with state law, clearing the way for the new criteria to take effect in about 30 days.

Garamendi said the changes would force auto insurers to adhere more strictly to the mandates of 1988's Proposition 103, which said drivers' safety records, the number of miles they drive and their years of driving experience should be given the greatest weight in setting rates. Most insurers now base much of the rate on where drivers live.

"Californians have waited 17 years, six months and eight days to end the system of basing auto insurance premiums based on where you live, rather than how you drive," said Douglas Heller, executive director of the Foundation for Taxpayer and Consumer Rights in Santa Monica, the successor to the organization that pushed Proposition 103.

He predicted that "in coming months, we are going to see reform and it's going to feel good for a lot of motorists."

Still, there may be more hurdles to clear. Insurers can comply with the rules by filing new rating formulas, as the Automobile Club of Southern California did Thursday, or they can file suit to fight the regulations.

Representatives of the state's largest auto insurers -- State Farm, Farmers and Allstate -- said Friday that they were weighing their options.

"I really wouldn't be surprised if there were some actions filed," said Ken Gibson of the American Insurance Assn., a Sacramento-based trade group.

Even if they don't contest the changes, insurers would have up to two years to fully adopt new formulas. They contend that Garamendi's new risk factors could hike rates for 60% of the state's motorists, especially those living in less populated areas.

"The regulations will create a very unfair situation for millions of drivers around the state," said Sam Sorich of the Assn. of California Insurance Companies.

Garamendi maintains that insurers are making enough profit to restructure their rates without sticking drivers with the bill.

"This is very good news for good drivers wherever they may be in California, rural, suburban or urban," he said.