Minorities paying more
12/30/2005
Hispanic Vista

Minorities paying more By Michael Liedtke Associated Press SAN FRANCISCO - December 20, 2005 - Motorists living in mostly black or Hispanic neighborhoods are charged substantially more for the same amount of auto insurance provided to drivers from white communities, according to an analysis released Monday by Consumers Union. After dissecting the price among California's three largest insurers in more than 500 ZIP codes, Consumers Union found car insurance in black neighborhoods costs 37.5 percent to 83.5 percent more than in communities dominated by non-Hispanic whites. That means the biggest auto insurers would charge a good driver an additional $537 to $974 per year for moving from a mostly white to black neighborhood, according to Consumers Union, the nonprofit group that publishes Consumer Reports magazine.

Good drivers living in Hispanic neighborhoods aren't hit quite as hard. Consumers Union concluded the pricing increase in California's Hispanic communities ranged from $103 to $214 annually, or 7.9 percent to 18.4 percent. The study further illuminates how a driver's home address sways the price of auto insurance - a thorny issue that has bedeviled California for nearly two decades. It took far less time to put a man on the moon than to close the regional pricing gaps in California auto insurance, said Mark Savage, a senior attorney for Consumers Union and the author of Monday's report.

An insurance reform initiative passed by California voters in 1988 was supposed to minimize the geographical differences, but the industry so far has been able to retain territory's influence on its prices. Insurers have long maintained that their reliance on motorist's ZIP codes is justified, citing their higher frequency of losses in some neighborhoods and the different traffic patterns in densely populated cities and sprawling suburbs. Insurance companies don't use race as part of their rating criteria, said Sam Sorich, president of the Association of California Insurance Companies, a trade group.

The Consumers Union study is a distraction from the fundamental point that insurance companies should be using data that predicts the likelihood of losses. Territory is a significant predictor. Consumers Union and other industry critics believe the current pricing practices unfairly discriminate against minority and low-income households, reflecting insurers' focus on more affluent policyholders. The high prices prompt more motorists to drive illegally without insurance - a problem that ultimately increases costs for everyone.

About 3.2 million, or 14 percent, California's vehicles are uninsured, according to the state Department of Insurance's most recent estimates. Not everyone in the insurance industry believes ZIP codes are the best way to parse auto insurance prices. Earlier this month, an influential risk assessment firm released a study arguing insurers should base their rates on how close drivers live to certain types of businesses or local landmarks.

For instance, motorists living within a mile of a church typically are involved in fewer accidents causing property damage than drivers living near restaurants, according to Quality Planning Corp. In its study, Consumers Union created the hypothetical profile of a good driver and plugged all the same characteristics into the pricing formulas of California's three largest auto insurers - State Farm, Farmers and Allstate. Combined, the three insurers cover more than 30 percent of California's drivers. The study spanned 1,838 ZIP codes under State Farm's 2004 rates and 531 ZIP codes for the 2002 pricing criteria used by Farmers and Allstate.

State Farm's 2002 prices also were examined, covering 531 ZIP codes. Consumers Union expanded the scope of its State Farm's analysis primarily because its rating formula wasn't as complicated as the other two insurers, Savage said. State Farm also is the market leader, covering nearly one in every seven of California's insured drivers.

The Personal Insurance Federation, a trade group that represents State Farm and Farmers, believes Consumers Union's study is flawed, said spokesman Jerry Davies. He also emphasized that the rates of all auto insurers are approved by state regulators. Proposition 103, the package of 1988 reforms approved by voters, mandated that auto insurance prices be based primarily on a driver's record, annual mileage and experience. But those rules also allow other factors to be considered, a provision that helped the industry persuade then-Insurance Commissioner Chuck Quackenbush to approve 1996 regulations that preserved ZIP codes as a major pricing factor.

The Quackenbush rules so far have been upheld by California courts. Current Insurance Commissioner John Garamendi has promised to unveil new pricing guidelines sometime during the next two weeks, concluding a more than two-year examination of the disparities created by the current rules. It's a complex issue, said Norman Williams, a spokesman for the California Department of Insurance.

It was done wrong before, so (Garamendi) wants to make sure it's done right this time. PRICE DIFFERENCES All annual average prices are based on standard auto insurance coverage for a female driver with no recent accidents or tickets and 22 years of previous driving experience. She drives her 1996 Acura about 16,000 miles annually. Here are the average prices that would be charged in different ZIP codes by California's three largest insurers State Farm (using 2002 formula) Average for non-Hispanic white ZIP codes $1,309.12 Average for Hispanic ZIP codes $1,412.68 Average for black ZIP codes $1,846.54 State Farm (using 2004 formula) Average for non-Hispanic white ZIP codes $1,506.67 Average for Hispanic ZIP codes $1,638.52 Average for black ZIP codes $2,072.05 Farmers Insurance (using 2002 formula) Average for non-Hispanic white ZIP codes $1,166.36 Average for Hispanic ZIP codes $1,380.64 Average for black ZIP codes $2,140.88 Allstate Insurance Average for non-Hispanic white ZIP codes $1,064.44 Average for Hispanic ZIP codes $1,202.50 Average for black ZIP codes $1,664.50 Source Consumers Union. - Associated Press (In accordance with Title 17 U.S.C. Section 107, this material is distributed by HispanicVista.com without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.)