Risk & Race in the Auto Insurance Business

People’s Republic of California Insurance Commissioner John Garamendi announced that he intends to change the auto insurance rate formula to soak rural county drivers to the benefit of urban county drivers. Actually, what Garamendi means to do is soak drivers in predominantly white areas to pay for the drivers in predominantly minority areas. At least, that is what an article in the Los Angeles Times would lead you to believe. Here’s a flash for you; insurance companies have no way of knowing the insured’s race or ethnicity. They could make some guesses by types of names, but try justifying that to some judge.

Currently auto insurance rates are determined by risk factors such as place of residence, age, sex, driving history, etc. The entire concept of insurance is to determine the risk of claims and to charge a fee sufficient to pay all claims and return a profit to the company. One way to do that is to throw every one in the same pot and charge everyone the same rate for the insurance. This, of course, is the ultimate socialized answer, which penalizes drivers with low risk factors and benefit drivers with high risk factors. That’s apparently Garamendi’s agenda, or least start to approach that concept by reducing the influence of using zip codes as a factor. The intended result is that drivers in “Los Angeles, Orange, San Francisco, Sacramento and Stanislaus counties would on average pay less, while drivers in 52 other counties would pay more …”

Consumer advocates, however, said the current system was unfair, because it raised rates for minority group members and others who could least afford the payments.

That’s a good socialist statement using race as a justification.

A female motorist with 22 years of driving experience and a good record who lives in predominantly white Westchester would pay $1,443 a year with Farmers Insurance Group, advocacy group Consumers Union said in a study released this week.

That same driver would pay $2,394 a year if she lived in the African American neighborhood of Baldwin Hills, the group said. Similar disparities occur for customers of other major insurance companies, Consumers Union said.

Minorities are paying more for insurance than whites? That’s terrible, if it were true. It’s not! Individual drivers are not paying more or less dependent upon their race. They are paying more or less dependent upon proven risk factors including areas of residence expressed as zip codes. Whites living in an “African American neighborhood” pay the same zip code related penalty as do minorities.

Using the above example comparing the female (note that her race is not mentioned) living in Westchester or Baldwin Hills, the proof is that the very same woman can move from one jurisdiction to the other and change her rate without anyone knowing her race. And, guess what. She is less likely to have a claim in Westchester and thus she should be entitled to a lower insurance rate.

This insurance proposal is a good example of the liberal/left playing a race card that is non-existent. It is really a scam to institute a more socialist environment. The god of socialism is well and alive in California.