A Wisconsin bill drafted to eliminate ZIP codes as a rating factor for determining automobile insurance rates could have broader implications and limit insurers in the state to just three acceptable rating factors.
According to the text of the bill (SB 348) introduced by State Senator Tim Carpenter, D-Milwaukee, insurers would be forbidden from using the ZIP code of an insured's residence as a rating factor on which to base rates. But the bill goes further to specify three permitted factors when setting rates: the driving record of an insured, the length of time that an insured has been driving, and the number of miles that the insured vehicle is driven in a year.
Greg LaCost, assistant vice president and regional manager of the Property Casualty Insurers Association of America (PCI), said this bill was likely introduced due to concerns that urban drivers may be unfairly affected by the use of rating factors such as ZIP codes.
Insurance associations have announced opposition to all aspects of the bill. Jeff Junkas, director of public affairs, Midwest region, for the American Insurance Association, said: "Not only does [the bill], by definition, ban ZIP codes proactively, but does it passively ban every other rating factor by prescribing those three areas?"
Mr. LaCost expressed concern that if passed, courts will interpret the text of the bill in this way.
Mr. Junkas and Mr. LaCost both said that should the bill pass, it would represent a major shift from current Wisconsin law regarding acceptable rating factors for auto insurance.
Eric Englund, president of the Wisconsin Insurance Alliance, an insurer trade association in the state, testified in opposition to the bill yesterday before the Senate Committee on Health, Human Services, Insurance and Job Creation. He said that comments made by industry members at the hearing may cause Sen. Carpenter to re-evaluate the portion of the bill that would limit insurers to just the three rating factors.
"[Sen. Carpenter's] testimony to the committee was that his intention was to remove geography as a rating variable and to require insurers to use only those three rating factors," Mr. Englund said. "As there was testimony presented in opposition to the bill that identified about 25 other rating factors that weren't geography, he took note and asked for that."
Mr. Englund said he could not say for certain if the bill will be altered, but he believes Sen. Carpenter will give consideration to the points raised by insurers.
Speaking to the ZIP code aspect of the bill, the AIA released a statement declaring that banning this rating factor would "hide the real cost of insurance" in the state.
John Birkinbine, AIA's assistant vice president, Midwest region, said: "Ignoring a driver's location does not reduce the likelihood a claim will be filed, it simply transfers the cost of that claim across the pool of all insured drivers, resulting in significantly higher premiums for good drivers in rural and ex-urban areas in order to subsidize drivers in higher-risk major cities, such as Milwaukee."
Mr. LaCost and Mr. Junkas said the bill will likely have a tough time passing through the full Senate, but Mr. Junkas noted that it may clear the Senate committee should a vote be held.
Calls to Sen. Carpenter's office were not returned.
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