State Farm Abandons ZIP Code Rates Plan
By Marc Lifsher, L.A. Times Staff Writer - August 19, 2006Under pressure, the auto insurer agrees to comply with new pricing criteria and also will reduce fees.
Published in the Los Angeles Times, August 17th 2006
SACRAMENTO -- California's largest automobile insurance company said Wednesday that it planned to cut premiums an average of 8% for almost all of its 3 million customers and begin setting rates mostly based on a motorist's driving record.
State Farm Mutual Automobile Insurance Co., which has 12.8% of the market, said it would abandon its opposition to new state rules outlawing the use of ZIP Codes and would comply today.
The state's second-largest insurer, Farmers Insurance Group, also said it would comply today but did not say whether it would lower rates overall.
The insurers revealed their plans Wednesday after a state appeals court rejected industry efforts to delay the regulations. The Automobile Club of Southern California and USAA previously agreed to comply, and other insurers are expected to follow.
State Farm's action was a major victory for California Insurance Commissioner John Garamendi and consumer advocates who have been fighting for more than a decade the use of ZIP Codes in setting insurance rates.
"This is a great victory for safe drivers across the state," Garamendi said. "The largest insurer in the state has dropped its ill-advised fight and decided to heed the wishes of the voters."
Individual auto insurance rates are based upon a baffling array of factors. State Farm's plan to file new rates today is a first step in a two-year process of adjusting to principles spelled out in Proposition 103, the auto insurance initiative approved by voters in 1988.
The measure, which has not been fully enforced until now, requires that insurance premiums be linked primarily to a motorist's driving record, the number of miles driven annually and years of experience behind the wheel.
State Farm spokesman Bill Sirola sought to promote the cut in auto rates but said they were not directly related to the ZIP Code issue. The are a payback to drivers for having fewer accidents.
"Our loss trends are lower than we expected, " Sirola, in Sacramento, said for the Bloomington, Ill.-based insurer.
Rates will drop for about 93% of State Farm's customers living in all 58 California counties, Sirola said. They'll save an estimated $204 million beginning with policies that renew Jan.2.
With its latest filing, State Farm will have slashed its rates by nearly 18% since October 2004, Sirola said. The company, though popular with drivers because of its claims services, in not known for its low prices.
State Farm's decision to comply with the new rate-setting criteria means that most other auto insurers will be forced to follow suit if they want to be competitive, predicted Harvey Rosenfield, a Santa Monica consumer activist and the attorney who wrote Proposition 103.
"I'm declaring victory after a 30-year battle to make insurance rates fairer," he said. "This is a matter of marketplace competition and economics. No insurance company can afford to defy Proposition 103 any longer."
Some insurance companies contend that the new auto rate regulations are arbitrary and, when fully in place, could punish drivers in rural and suburban California with higher rates.
"We think these regulations are illegal," said Sam Sorich, president of the Assn. of California Insurance Cos., one of three trade groups suing to overturn the regulations in Sacramento Superior Court.
The lawsuit appears to be on shakier ground now that State Farm has decided to jettison its ZIP-Code rates plan.
On July 10, the fourth-largest carrier, the Automobile Club of Southern California, broke ranks with the industry, saying it would cut rates by 7%. A week ago, the ninth-largest, USAA, said it would shave premiums by 5%.
Other auto insurers face a court-ordered deadline today to file similar rate plans that also may include rate reductions. The companies, represented by the three trade groups, unsuccessfully asked a Sacramento Superior Court Judge to issue a preliminary injunction that would have put the rate regulations on ice pending resolution of their lawsuit. On Wednesday, a state Court of Appeals refused to over-rule the lower court's decision.
The insurance groups said they were disappointed by the loss in the appeals court but are determined to press their point when their lawsuit goes to trial.
They contend that where a car is garaged is a proven factor in determining the risk of losses. People who live in densely populated cities have more accidents or thefts than drivers in quieter rural and suburban communities, insurers say in their legal briefs.
"We're committed to getting a legal ruling at some point," said Sorich of the Assn. of California Insurance Cos. "Our concern is that, ultimately, when the regulations are fully in place, they will be based on factors that don't reflect the risk of loss." | 
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