California Auto Insurance Rates

The time has long passed for California's auto insurance companies to base their rates not on where people live but on how they drive.

Proposition 103 mandated as much back in 1988, but peer pressure by the insurance industry has prevented any individual insurers from breaking from the ranks. Finally, this oligopoly appears to be fracturing. The Automobile Club of Southern California, the state's fourth-largest auto insurer with 1 million customers, announced recently that it would base its rates primarily on how safely its customers drive, and how much they drive. The Automobile Club of Northern California, the sixth-largest insurer, is joining its southern cousin in making the change. This is a significant victory for Insurance Commissioner John Garamendi, who has been battling the insurers for years, although it is unclear whether other insurers will follow suit.

Auto insurance rates in California are all over the map, since they are largely based on a person's ZIP code. A report by Consumers Union found that a 22-year-old woman with a good driving record would pay much higher rates if she lived in a largely Hispanic or African American neighborhood instead of a largely white one. While other factors might account for this disparity, it is obvious that current rates don't adequately reward individual drivers who are careful and use their cars sparingly.

Garamendi will leave office this year, so it could be up to his successor -- either Cruz Bustamante or Steve Poizner -- to continue this fight. If more insurance companies are pressured to reform their rates, motorists will be able to shop around and use the market to pressure the holdouts.