What is California's Proposition 103?
Proposition 103 (commonly known as Prop 103) was voted into effect in the state of California in 1988. The consumer protection portion of the bill changed how auto insurance companies in the state could rate—that is, determine the risk posed by a driver and the subsequent premium associated with that risk. Basically, Prop 103 told insurers that they could no longer use a customer’s location, city of residence, or ZIP code to determine their premium. Despite that, research shows that auto insurance rates in California are still largely influenced by a customer’s location.
What are the most expensive zip codes in California?
Since car insurance coverage is mandatory for all drivers in the state of California, no one wants to pay more than they have to. Recent research appears to demonstrate that where you live within California, down to your ZIP code, could be the predominant factor in determining how much you pay for car insurance and it appears that the difference from ZIP code to ZIP code can be substantial.
Numbers culled from the study appear to offer a startling revelation via some rather shocking numbers.
According to the study, as cited by the L.A. Times:
- California: Throughout the state, the average annual auto insurance premium is $746/vehicle.
- Los Angeles: 32% more than that state average
- North and West Hollywood: 51% more than the state average
- Glendale: 50% more than state average
To give this some perspective, San Francisco—the most expensive city to live in within California, pays on average only 8% more than the state average for car insurance and San Diego pays 11% less than the state average. So what’s causing these huge differences in the price of auto insurance and why does location appear to be playing a role when a state law clearly makes it illegal for auto insurance companies to use location as an influence on how much they charge you for auto insurance coverage?
What else effects your car insurance premium?
Yes, you can see a trend emerge when viewing the cost of auto insurance in California based on customers’ ZIP code. However, it is possible that other factors may be causing the price of car insurance to go up and those factors might just happen to correlate with location.
What sorts of things might raise a driver’s auto insurance rates that would also be affected by location?
- Crime: Car thefts and vandalism are often contained to certain neighborhoods. This type of crime isn’t often a universal problem within a city—there are hot spots. Specific areas where these kinds of crimes occur. A high crime area would pay more for car insurance than would a low crime area.
- Average Household Income: This is just a fact of how American cities are constructed. Each neighborhood is designed for a specific income bracket. More affluent neighborhoods mean that drivers in those areas drive nicer vehicles. The cost of your vehicle is directly related to how much you pay for car insurance and auto insurance companies are allowed to rate on this factor.
- Occupation and Education: This point is actually tied to our last bullet point. How much you earn is determined by these two factors and in turn may determine the neighborhood you live in.
- Credit Score: It’s illegal for auto insurance providers to rate based on a consumer’s credit score in California. However, this can be a factor in other states. Again, your credit score is often tied to where you live. People who live in affluent neighborhoods are less likely to have bad credit, and vice versa.
In short, your ZIP code says more about you than you might think. This, of course, is why Prop 103 outlawed rating based on a customer’s location. Unfortunately, the law was not written to be specific enough to prevent insurers from rating on the smaller factors that ultimately play a hand in where a customer lives. Proposition 103, in this context, just made the insurance companies work harder to get the same information they were already using to determine auto insurance rates.
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