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Consumer Advocates Skeptical About New Auto Insurance Plan

December 7, 1989

SAN FRANCISCO (AP) _ Insurance companies no longer will be allowed to weight their rates on where a driver lives, according to new state regulations which already are drawing a skeptical reaction from consumer groups.

California’s insurance commissioner announced a ban Tuesday on territorial rating, a move she said will lower rates for urban drivers and raise rates slightly for rural and suburban drivers.

The changes stem from Proposition 103, which was approved by voters in 1988 and requires auto insurance rates based primarily on a driver’s safety record, experience and miles driven.

The ballot initiative allowed the insurance commissioner to specify other factors an insurance company could consider. That left Commissioner Roxani Gillespie to decide whether to allow companies to continue to take a driver’s residence into account, a factor that has led to much higher rates for inner- city residents.

″The commissioner is promising what we want, but her regulations may deliver exactly what we don’t want and thus may be a fraud and an outright violation of Proposition 103,″ said Walter Zelman, former executive director of Common Cause and a candidate for the insurance commissioner’s job when it becomes an elected position in 1990.

Gillespie, who said she will not run for the post next year, allowed insurers to rely on many other factors that consumer advocates said will play the same role as territorial rating. Those factors include repair costs, health costs and population density.

She also limited any driver’s annual rate increase to the percentage rise in the national Consumer Price Index and prohibited auto insurance rate discrimination based on sex or marital status.

″The net effect will be decreases for urban (drivers) and small increases for rural and suburban,″ Gillespie said.

Drivers with no more than one moving violation in three years will be guaranteed rates at least 20 percent below those of other drivers, Gillespie told reporters.

She said that while a wide range of experts recognize territory as ″a valid rating factor,″ reliance on area of residence under her new system would be ″a little softened from what it is now.″

Jack Murgia of Voter Revolt, sponsor of Proposition 103, said the regulations are ″ninety percent of what we wanted.″ The outstanding question, he said, is how great a role a driver’s place of residence will continue to play in rate-setting.

Harry Snyder of Consumers’ Union said Gillespie’s rules would let geographically based rates continue almost unabated.

The regulations take effect within 90 days unless blocked in court. A freeze on auto insurance rates will continue until the new rules are implemented, Gillespie said.