Insurer Seeks Lower Rates for Good Drivers : State Farm, in Step to Comply With Prop. 103, Would Make Problem Motorists Pay More

State Farm, California’s largest auto insurance seller, has asked Insurance Commissioner Roxani Gillespie for permission to lower its rates for most good drivers in central Los Angeles by 5% to 15%, in a step toward complying with a key provision of Proposition 103.

Most good drivers in San Diego would receive rate reductions ranging from 2% to 19%, most such drivers in eastern San Francisco would see reductions ranging from 2% to 12% and most good drivers in rural Northern California counties would get decreases ranging from 3% to 18%, if the company’s proposal is approved.

Good drivers are defined as those with no more than one conviction for moving traffic violations in the previous three years.

Sharply Higher Rates

State Farm is proposing to pay for these decreases by sharply increasing the rates of problem drivers, no matter where they live, who have been convicted of two or more traffic violations in the previous three years. Most of these drivers, according to examples released by the company, would see their rates increase anywhere from 29% to 36%.

A company spokeswoman said that only “a very small number” of drivers in the areas mentioned would fall outside these ranges of increases or decreases, if Gillespie approves the new rate schedule.

The new schedule is revenue neutral, meaning that State Farm would end up with the same amount of total premium income statewide after the various increases and decreases.

The spokeswoman said the central Los Angeles territory mentioned includes the neighborhoods of Beverly Hills, West Hollywood, Hollywood, Los Feliz, Silver Lake, Echo Park, Park La Brea, Hancock Park, Koreatown, Westlake, Hyde Park, View Park, Windsor Hills, Vernon, Florence, Athens, Watts and Willowbrook.

Although State Farm provided examples of how the new rates would affect drivers in only a few specific areas, spokeswoman Judith Mintel said the move toward lower rates for good drivers and higher ones for problem drivers would, if approved, be implemented throughout the state in generally the same patterns.

The filing with Gillespie marks the first time any major company has moved in a detailed way toward compliance with the provision in Proposition 103 that mandates that a driver’s record, the number of miles driven and the years of driving experience be more important in setting auto insurance prices than the neighborhood in which he or she lives.

Virtually all the major insurance sellers have opposed downgrading of neighborhood-based pricing, known in the business as the territorial rating system. And State Farm on Friday emphasized that its proposed rates would, on balance, only “slightly diminish” the importance of neighborhood as a pricing factor.

The spokeswoman said that the rate adjustments are being made on a territory-by-territory basis and that the average urban driver would continue to pay more than the average rural or suburban driver.

Company’s Intent

Nonetheless, State Farm’s filing with Gillespie said that the company intends in the new rates to “place more emphasis on driving safety record, miles driven and years of driving experience as required by Proposition 103.” In doing this, it necessarily diminishes the importance of where a driver lives as a pricing factor.

Beyond that, the proposed rates by State Farm mark the first time a major insurer has abandoned an attitude of total resistance to implementation of Proposition 103 since it was approved by the electorate last November.

There has been no reaction yet by Gillespie to State Farm’s requests. The insurance commissioner, however, has called a news conference for Monday in San Francisco at which she may lay out emergency regulations of her own for applying the pricing provisions of Proposition 103.

State Farm said that time constraints will not permit implementing the commissioner’s regulations immediately, and it asked for permission to apply its own new rates from Nov. 8 onward “for a reasonable time.”

Gillespie has in the past expressed great hesitancy in accepting the Proposition 103 rating criteria literally and downgrading neighborhood pricing. But she has said there will be a change in ratings, and she may not wish to do less than State Farm has now indicated it is willing to do.

Important Influence

Gillespie has repeatedly suggested it would be impossible to bring down rates for good drivers in urban areas without raising them in rural areas. But the State Farm proposal notably finds a way to reduce rates for such drivers everywhere, mainly by putting the burden on problem drivers.

State Farm, with about 3 million California customers, has 17% of the total auto insurance market in the state and has long been an important influence over the rest of the industry.

But a lobbyist for several other major companies expressed reservations Friday about State Farm’s rate requests. Asking not to be identified, he said that State Farm does less business in inner city areas than other big companies, such as Allstate, so it is easier for it to agree to cut its rates for good drivers in urban areas.

Consumer spokesmen were also reserved about State Farm’s rate proposal, suggesting that it does not go far enough toward reducing the differential in prices between urban and rural areas.

Harvey Rosenfield, the author of Proposition 103 and chairman of Voter Revolt, said, for instance, that State Farm should be required to lower rates for good drivers far more.

Conway Collis, the State Board of Equalization member who has been endorsed by Rosenfield for insurance commissioner when the post becomes elective next year, said the State Farm proposal “begins to bring down rates for good drivers in Los Angeles and elsewhere, but not nearly to the extent that they will be after 103 is fully implemented.”

State Farm, in its filings with Gillespie, also gave other examples of how rates might fluctuate by driver according to how many miles were driven each year, how many years of driving experience he or she had, and how many accidents there had been.

When these factors were included in the calculation, the increases and decreases varied.

The examples given all involved a 1988 Ford Taurus GL four-door sedan with a fairly complete coverage package and multiple cars in the household. However, the State Farm spokeswoman said the examples were meant to be representative of patterns in other situations as well.

In Los Angeles, in one example, household drivers with no traffic convictions, driving more than 7,500 miles a year, with nine years of driving experience, under age 50 and having a policy in force at least six years would get a decrease of 6.5% in premium, from $1,018 for each six months to $952.

If one driver in the household had one minor traffic conviction in the previous three years, the drivers covered would still get a 6.5% decrease, from $1,018 to $952. But if one driver had two convictions, the household drivers would get a 29.1% increase, from $1,018 semiannually to $1,315.

If the drivers had no convictions and no chargeable (at-fault) accidents and the car was driven less than 7,500 miles a year, with the principal driver in the household having five to nine years experience and being a single female, the premium would drop by 15.1%, from $1,474 to $1,252. If, on the other hand, the vehicle was driven more than 7,500 miles a year, the decrease would be only 4.9%, from $1,474 to $1,402. And if there had been one chargeable accident, there would be a 7.6% increase, from $1,582 to $1,702.

If the drivers had no moving traffic convictions, no chargeable accidents, the car was driven more than 7,500 miles a year, and the principal driver had less than three years driving experience and was a single male, the increase would be 18.6%, from $3,270 to $3,878.

If one driver in the household had one conviction of a minor traffic violation, no chargeable accidents, the car was driven more than 7,500 miles per year, and each driver had nine years or more of driving experience (14 years for a single male) and was under age 50, and the car was driven to and from work more than 30 but not over 100 miles a week, there would be a 15% decrease, from $1,415 to $1,202.

The examples provided by State Farm demonstrate how changes in the facts about a drivers’ situation can lead to dramatically different rates.

WHERE RATES WOULD BE LOWERED

The map shows neighborhoods in Los Angeles where State Farm, California’s largest auto insurer, is proposing to reduce rates for most “good drivers” in November between 5% and 15%. At the same time, most drivers in these areas with more than two traffic violations in the last three years would be given rate increases close to 30%. The proposed rate adjustments are designed to bring the company into compliance with a key provision of Proposition 103 calling for a reduction of neighborhood price differentials.

1. Beverly Hills

2. West Hollywood

3. Hollywood

4. Los Feliz

5. Silverlake

6. Echo Park

7. Park La Brea

8. Hancock Park

9. Koreatown

10. Westlake

11. View Park

12. Windsor Hills

13. Hyde Park

14. Vernon

15. Florence

16. Athens

17. Watts

18. Willowbrook