Auto Club of SoCal reduced rates take effect in December

California’s fourth-largest provider of auto insurance has agreed to base its rates on safety and driving frequency rather than primarily on where a driver lives.

The plan, to take effect Dec. 1, would cut some $133 million from the annual bills of the club’s nearly 1 million California policyholders.

Passed in 1988, Proposition 103 required rates primarily be tied to a person’s driving record, number of years licensed and total miles driven each year, not the ZIP code where a vehicle is registered.

Still, the changes have been held up. Insurers argued where a driver lives is an essential factor in assessing risks and costs. They persuaded former Insurance Commissioner Chuck Quackenbush to allow ZIP codes to remain a priority in setting rates. Quackenbush’s regulations and later court rulings kept the old rules largely in place.

In December 2005, state Commissioner John Garamendi announced he would propose his own regulations aimed at fulfilling the mandate of Proposition 103.

Rating systems, which rely heavily on geography, allow insurers to discriminate by charging high rates for motorists living in ZIP codes they might not want to serve, Garamendi said.

As to why insurance companies base their rates on where a person lives, Garamendi said, “There’s no good reason for it in my estimation, perhaps it’s the history, perhaps it’s marketing practices and perhaps it’s even more onerous than that.”

The Auto Club’s decision sends a message to other insurers that “they can respect the wishes of the voters and make money at the same time,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. The Santa Monica attorney wrote Proposition 103 and has been working ever since to see it fully enforced.

By voluntarily accepting Garamendi’s rules, the Auto Club is distancing itself from the stance taken by rival insurers, who now say they may sue Garamendi over the recently approved regulations.

Five major insurance companies, including No. 1 State Farm Mutual Insurance Co. and No. 2 Farmers, spent more than $2 million attacking Garamendi’s rules in a television ad campaign before the June primary election.

With more than 5 million members, the Automobile Club of Southern California says it is the largest U.S. affiliate of the not-for-profit American Automobile Association. It offers services including numerous types of insurance, roadside assistance, travel planning, financial products, and safety programs, among others.

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