Territorial Rating Back on Radar Screen in Calif., ACIC Says

The California Department of Insurance recently accepted a petition that would change how automobile insurance rates are set in California. The petition, proposed by consumer groups, would restrict the importance that insurance companies could give to a driver’s ZIP code—or territorial data—when underwriting and rating auto insurance.

Department officials will schedule a time to hear arguments from both insurers and consumer groups on amending existing regulations on private passenger automobile insurance rating factors. A public hearing for comments will likely follow. No meetings or hearings have been scheduled at this time.

“Given the challenges facing the California Department of Insurance today, the Association of California Insurance Companies (ACIC) questions the need for more hearings on amendments to the current regulations on automobile rating factors,” said ACIC president Sam Sorich. “The current regulations have achieved a level of balance and fairness that should be preserved. At the end of the day, fairness demands that factors related to territory must be given significant weight.”

Proposition 103 mandates that insurers use driving records, miles driven and years of driving experience to determine rates. It also allows other “optional” factors that are approved by the insurance commissioner. Territory data are among the optional factors currently permitted.

On May 29, the Consumers Union, the cities of Los Angeles, San Francisco and Oakland, and other organizations filed a petition to the Department of Insurance in an attempt to restrict insurers’ use of territory data in underwriting and rating policies.

The California Court of Appeal ruled in 2000 that “unrefuted evidence establishes that territory is a more important determinant of risk of loss than any other single factor,” Sorich noted.

“The proposals put forward in the petition to the Department ignore this reality,” Sorich said.