Proposition 103 and the Gerrymandering of California’s Car Insurance

California is defined by the automobile. In California, it doesn’t matter how poor you are, you quite simply need a car to do anything. It’s no surprise then that California has one of the largest percentages of uninsured drivers in the country, despite recent legislation providing low-cost auto insurance for residents of San Francisco and Los Angeles. This unique auto insurance market has been defined and re-defined a number of times.

1947 saw the creation of the California Automobile Assigned Risk Plan (the deliciously acronymed CAARP). Mandated by the state legislature ‘to provide automobile liability insurance to those who “in good faith” are entitled to but are unable to procure such insurance through ordinary methods’, CAARP has become the method of distribution for that most California-esque of all state-run safety nets – state administered auto insurance. CAARP is backed by insurance companies who are required by law to participate in the plan.

In 1988, proposition 103 barred California auto insurers from pricing products according to ZIP code and based pricing strictly on the policy holder’s driving record. Of course, the industry pushed back against prop 103 – saying that they would simply not service areas where the risk to their investment was higher. The result was the state insurance regulating agency allowed the practice to continue. By the late 90s, up to a third of California drivers were uninsured.

By 2000, with the problem reaching epidemic proportions, CAARP was tasked with administering a base line insurance scheme for low-income drivers designed to meet the state minimums. The program has been a moderate success, bringing the uninsured population to 22% of the total. But when contrasted with a state like South Carolina, with an uninsured fleet of 6% of the total, there is still a long way to go.

Interesting then, that in December, Insurance Commissioner John Garamendi revived plans to institute prop 103 – with major revisions that would allow insurers to maintain some degree of ZIP profiling. It may have something to do with the fact that Garamendi is running for Lieutenant Governor in November, but the timing seems interesting. Not least because Automobile Club of California, the state’s fourth-largest auto insurer, has decided to base rates primarily on driving record and frequency – a move that Garamendi has thrown his weight behind.

While economists debate the (valid) invisible hand versus government intervention semantics, the bottom line is this: rich or poor, city or country; in California, you needs you a car.

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