Loading The Rates For "bad" Neighborhoods

By Author: Marcus Stalder
Total Articles: 491
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When you look at insurance from all the angles, do you expect to find it a fair way of dealing with the risks of an accident? In a way, this is tricky because it can be difficult to decide what we mean by "fair"? From our point of view, the fairest system gives us cheap insurance cover against all the more common risks. It might be this requires a redistribution of risk so that, say, the good drivers subsidize the bad. Or it might mean we all get to pay a personal rate based on own own safety record. So all us good drivers who never make a claim always pay less than the bad drivers who crash into things on a regular basis. Depending on your view, that makes "fair" either what's good for all or what's good for you.

Let's take the zip code debate as an example of the problem. In all states except for California, the insurers add a percentage to the premium rates for those who live in a "bad" neighborhood. The actuaries collect detailed information about every reported criminal offense. This means talking to the local law enforcement agencies, surveying the local newspapers, scanning blogs and other reports of local events, ...
... and so on. This is then matched to all the hospital reports of injuries caused by accidents and the claims actually made. Over time, the insurers build up a picture of what it's like to live in each zip code area. So when you disclose your address, the quote you get will be based on an assessment of the risk you will be involved in an accident, or your vehicle will be stolen or vandalized. This is personalized insurance and, if you ask for collision or comprehensive cover, your rates will be higher than quoted to those living in "good" neighborhoods. As for liability cover, the premium for basic mandatory minimum will be more or less the same no matter where you live.

Curiously, this reliance on zip codes was stopped in California through the ballot box. Proposition 103 was passed in 1988 and, after much debate between the Insurance Commissioner and the insurance industry, detailed regulations were brought into law in 2003. As a result, Californian drivers have saved billions of dollars in additional premiums. Despite the worst predictions of the insurance industry, all the insurers have remained profitable, even though we've just been through the worst recession in fifty years. So we have to assume this was a fair outcome for all concerned. It therefore prompts the question why this has not happened elsewhere. The answer is politics. If you're waiting for lawmakers to ignore the lobbyists bearing gifts, you'll have a long wait. No state is going to pass a law making insurance less profitable in their state unless enough voters are interested enough to force it. So, until the world turns on its head, you should get auto insurance quotes testing the availability of different discounts. You should save money if your vehicle can be kept off the road in a garage, or you fit anti-theft devices. It costs nothing to run multiple searches using different variables, so get auto insurance quotes for all the possibilities and see how you can save money.