17 years in the making, California drivers finally get justice in auto insurance rates

In November 1988 California voters passed an initiative that told the auto insurance industry to stop calculating drivers' insurance rates based on their zip code. The industry, with the help of previous insurance commissioners, pretty much ignored the voters. But the current insurance commissioner, John Garamendi, has changed regulations and standards to force compliance - and the industry has taken notice.

While some companies are threatening to go to court to stop the changes, the Automobile Club of Southern California - the state's fourth-largest insurer - has put together a plan to take zip codes out of its math. The company expects that 88 percent of the 993,000 drivers it insures will see savings of about 7 percent on average, or $134 a year. Those who will see an increase should expect their premiums to rise less than 5 percent. The new rate-setting formulas take effect in December and will cost Auto Club up to $133 million a year.

Harvey Rosenfield, the proposition's author, welcomed the news: "Today, the Auto Club has demonstrated extraordinary leadership, embraced change and made a commitment to Southern California by deciding to implement Commissioner Garamendi's good driver regulations ahead of schedule," he said. "The Auto Club's decision sets a standard for fairness in the marketplace that should be emulated by other insurers."

How unfair is the practice of using zip codes? Consumers Union did a study last year and offered this real-life example: A woman with 22 years of driving experience and a good record, residing in predominantly white Westchester, would pay $1,443 a year with Farmers Insurance Group. The same driver would pay $2,394 if she lived in the largely African American Baldwin Hills neighborhood.

Passed in 1988, Proposition 103 required insurers to stop basing rates on a person's zip code. Instead, the primary factors for calculating rates had to be:

• a person's driving record
• number of years licensed
• total miles driven each year

Garmendi is still being generous with the industry, giving auto insurers two years to comply with his new regulations. When rates do come down, 60 percent of rural and suburban drivers will benefit, as will drivers in L.A., San Francisco and Sacramento.