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HomeMy WebLinkAbout1979-02-06; City Council; 5734; Supporting territorial auto ins rating systemCITY OF CARLSBAD AGENDA BILL NO. 3~ 7 3 4 Initial: Dept.Hd. DATE: February 6, 1979 n DEPARTMENT: City Council C. Mgr. Subject: RESOLUTION URGING MAINTENANCE OF EQUITABLE SYSTEM OF TERRITORIAL RATING BY AUTOMOBILE INSURERS Statement of the Matter The Automobile Club of Southern California has requested Council consideration of the adoption of a resolution urging the maintenance of the system of territorial rating by automobile insurers. In the past the legislature has considered .bills prohibiting territorial rating and using one rate throughout California. Because of the adverse impact on most California insureds, these bills have not been successful. The legislature has requested the Department of Insurance to study the question and prepare a report. Hearings will be held early this year by the Department of Insurance and input is desired from the public and local governments on behalf of their residents. Exhibit Letter from Automobile Club of Southern California, 1-18-79 Background information supplied by Automobile Club Resolution No. Recommendation If Council concurs, adopt Resolution Council Action: 2-6-79 Council adopted Resolution 5661 urging Insurance Commissioner to maintain and recommend to the legislature maintenance of an equitable system of territorial rating. Automobile Club of Southern California 301 CASSIDY STREET • OCEANSIDE. CALIFORNIA 92054 MAILING ADDRESS: P.O. BOX 1128 • OCEANSIDE, CALIFORNIA 92054 OCEANSIDE DISTRICT OFFICE (714) 433-6261 January 18, 1979 Ronald Packard Mayor of Carlsbad Carlsbad City Hall 1200 Elm Street Carlsbad, Ca. 92008 Re: Territorial Rating Dear Mayor Packard: Territorial rating by automobile insurers is currently being challenged in the courts and the legislature. People are concerned about the high cost of automobile insurance. The legislature has considered bills to prohibit territorial rating in this and prior years, but because of the adverse impact on most California insureds, the bills have not been successful. However, the legislature has asked the Department of Insurance to study the question and prepare a report. The Department will hold hearings early this year, and is soliciting input from the public and local govern- ments on behalf of their residents. Therefore, I am requesting your consideration in introducing a resolution through the Carlsbad City Council on this subject. This can be addressed to: Honorable Wesley J. Kinder Insurance Commissioner Department of Insurance 100 Van Ness Avenue, 17th Floor San Francisco, California 94102 If the present territorial rating system is abolished and only one terri- torial rate used throughout California, it would mean at least a 52% increase in automobile insurance to the citizens of Carlsbad. I have previously discussed this situation with City Manager, Paul Bussey, and he has all the information concerning same. I appreciate your consideration of the problem and I am sure you will agree that it is in the public's interest that the territorial system for automo- bile insurance not be discarded. Sincerely, oss Office Hours: 9:00 a.m. to 6:00 p.m. Monday through Friday Closed Saturday, Sunday and Holidays. ~ Territorial Rating by Automobile Insurers Territorial rating is a method of differentiating automobile insurance rates on the basis of claims loss costs. Loss experience varies from area-to-area, and insurers charge different prices for coverage in those areas for both economic and competitive reasons. Different insurers use different territorial boundaries, although a large number of companies subscribe to territories identified by the Insurance Services Office, a rating organization. Major insur- ers such as Allstate, State Farm, Farmers, and the Interinsurance ••?• Exchange of the Automobile Club of Southern California identify their own territorial boundaries. Territorial rating is currently being challenged in the courts and the Legislature. People (and insurers) are concerned about the high cost of insurance. In that climate, almost any "solution" will receive attention. The Legislature has considered bills to prohibit territorial rating in this and prior years, but because of the ad- verse impact on most California insureds, the bills have not been successful. However, the Legislature has asked the Department of Insurance to study the question and prepare a report. The Depart- ment will hold hearings early this year, and is soliciting input from the public and local governments on behalf of their residents. There is a reasonable basis for territorial rating. Insurers pay losses to, and on behalf of, insureds. Territorial rating permits insurers to recover the cost of paying those losses from those to whom, or on behalf of whom, payment is made. Since most losses occur within a short distance of one's home, the losses are charged to the place where the vehicle is principally garaged. Loss costs for territories are reviewed periodically, and rates adjusted ap- propriately. Territorial boundaries are reviewed from time-to-time to assure that groups of insureds with similar loss experiences are grouped together. To lower internal operating costs and to facili- tate accumulation of loss data by more compact areas, some insurers with the urging of the Department of Insurance, now use groupings of zip codes as their territories, but again based on losses experienced, The elements of insurance cost vary from area to area, including medical and hospital costs,, auto repair costs, litigation frequency and resultant investigation and defense costs, claimants' expecta- tions and jury attitudes, frequency of accidents, theft and vandal- ism rates, etc. Territorial rating facilitates reflecting these variations in the amount insureds pay for insurance. Several results might be anticipated if territorial rating is abolished. -2- First, abolishing territorial rating will do nothing to control the factors outlined above which contribute to the high cost of insur- ance. Eliminating territorial rating will not lower the cost of in- surance because it does not lower the cost or frequency of accidents, Second, while the cost of insurance may not be lowered generally, eliminating territorial rating will lov/er the cost, at least for a time, for some insureds, generally in the high-rated central city areas. To reduce the cost of insurance to residents of these areas (about one-third of California insured drivers), the cost must in- crease substantially for the other two-thirds of insured motorists. This represents a subsidy of insurance costs from lower-rated ter- •> ritories to higher-rated territories. Not all metropolitan ter- ritories are high-rated, so even within the County of Los Angeles a subsidy situation would be created. Carlsbad will be particularly affected. For in- stance, the present range of auto insurance premiums charged by one insurer varies from a high of $751 per year in Central Los Angeles and $652 per year in Beverly Hills to the low end of the range for Santa Barbara residents with a premium of $237 and San Diego residents with a premium of $248. Carlsbad area residents average 51%for com- parative purposes. (These rates are illustrative of the premium -3- paid by the carrier's typical policyholder, in this instance defined as an adult commuting less than fifteen miles one-way to work, driv- ing a Chevrolet Impala, and purchasing coverage in the following amounts: $15,000/30,000 Bodily Injury, $10,000 Property Damage, $2,000 Med-Pay, no deductible (full cash value) Comprehensive, $100 deductible Collision, and $15,000/30,000 Uninsured Motorist. One carrier estimates an increase of approximately 51% percent in auto insurance premium costs for residents of carl <s if forced to charge an average rate for the state as a whole. The high cost of auto insurance is a problem which must be dealt with, but realistically. Basic reform of the tort system and part of it which deals with auto accidents is needed. Solutions will be complex and since many interest groups are involved, will take time. The move to prohibit territorial rating should be defeated, to assure that an equitable method of allocating insurance costs is maintained, and that the residents of Carlsbad •. are not further bur- dened with higher insurance costs. The attached resolution will place the City of Carlsbad on record with the Department of Insurance and our legislators that we oppose moves to require our residents to subsidize residents of other areas with regard to automobile insurance costs. 1/4/79 -4- 1 RESOLUTION NO. 5661 2 3 4 5 " ri ' [ment of Insurance study the subject of territorial rating systems ft0 I used by automobile insurers; and 0* WHEREAS, territorial rating is a method of differentiating automobile insurance rates on the basis of claims loss costs, which differ from area-to-area; and "LP •^ WHEREAS, the California Legislature has acted in recent years 13 to defeat legislation which would abolish territorial rating and 15 17 18 19 20 21 22 23 24 25 26 27 28 A RESOLUTION OF THE CITY OF CARLSBAD URGING INSURANCE COMMISSIONER TO MAINTAIN AND RECOMMEND TO THE LEGIS- LATURE MAINTENANCE OF, AN EQUITABLE SYSTEM OF TERRITORIAL RATING. WHEREAS, the California Legislature has requested the Depart- require a single rate be used by automobile insurers throughout the state; and T fi WHEREAS, a statewide average automobile insurance rate would not reduce the overall cost of insurance to the public, but would merely effect a reallocation of existing costs among various geographic areas; and WHEREAS, throughout California, imposition of an average rate would increase premiums for two-thirds of California's motorists; and WHEREAS, the residents of the City of Carlsbad would be i burdened with increased premiums as a result of abolishing terri- torial rating; by some insurance industry estimates, said increase to approximate 51% percent for a typical insured motorist in this area; and 1 2 5 4 5 6 rt ' of territorial rating by which loss costs of automobile insurers e>0 are allocated to those areas in which persons causing such losses " reside; and 10 BE IT FURTHER RESOLVED, that the City Clerk forward a copy of 11 13 15 18 20 22 25 26 27 28 WHEREAS, the Department of Insurance has invited participation A in the study by cities and counties .on behalf of their affected '. residents; NOW, THEREFORE, BE IT RESOLVED, that the City of Carlsbad hereby urges the Commissioner of Insurance to maintain, and » recommend to the Legislature^ maintenance of, an equitable system this resolution to the Commissioner of Insurance for inclusion in the hearing record and to Assemblyman Robert Frazee and Senator William Craven.. PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council on the 6th day of February , 1979 by the following vote, to wit: 1 m< CounciIwoman Casler T 7 i•*•' AYES: Councilman Packard, Skotnicki, Anear, Lewis and NOES: None ABSENT: None RONALD C. PACKARD, Mayor ATTEST: A . 0,,ALETHAL. RAUTENKRANZ, City dO (SEAL) February 9, 1979 Honorable Wisley J. Kinder Insurance Commissioner Department of Insurance TOO Van Ness Ave., 17th Floor San Francisco, CA 94102 ttnclosed please find a copy of Resolution No. 5661 of the Carlsbad City Council, urging that you maintain and recommend to the Legislature main- tenance of an equitable system of territorial rating. The above-mentioned resolution was adopted at a regular meeting of the Carlsbad City Council, after discussion of the matter, and with the direction that a copy of the resolution be for- warded to you. ALETHA L. RAUTENKRANZ City Clerk ALRtkrs Enclosure (1) February 9, 1979 Assemblyman Robert Frazee State Capitol, Room 5175 Sacramento, CA 95814 Enclosed please find a copy of Rfsolutlon No. 5661 of the Carlsfcad City Council, urcilng the Insurance Commissioner to maintain and recommend to the Legislature maintenance of an equitable system of territorial rating. The above-mentioned resolution was adopted at a regular meeting of tbh Carlsbad City Council, after discussion of the matter, and with the direction that a copy of the resolution be forwarded to you. ALETHA L. RAUTENKRAKZ City Clerk ALR:krs Enclosure (1) February 9, 1979 Senator Ml 111am Craven State Capitol Sacramento, CA 95814 Enclosed please find a copy of Resolution No. 5661 of the Carlsbad City Council, urging the Insurance Commissioner to maintain and recommend to the Legislature maintenance of an equitable system of territorial rating. The above-mentioned resolution was adopted at a regular meeting of the Carlsbad City Council, after discussion of the matter, and with the direction that a copy of the resolution be forwarded to you. ALETHA L. RAUTENKRANZ City Clerk ALRrkrs Enclosure (1)