Study Backs Territorial Rates For Auto Insurance

Ms. Sprinkel, who said her group decided to study California specifically because of the ongoing debate there, said that "from our research, we see different claiming behaviors from territory to territory."

"To the extent that you are not able to get that from any other information available to insurers, the territory rating is a method that companies should be allowed to use," Ms. Sprinkel told National Underwriter.

She added that the trends identified in this study drive up costs of insuring drivers in California's metropolitan centers.

Ms. Sprinkel said, "We hope that this research will inform California policymakers in the current debate over the state's auto insurance ratemaking regulations. Many fear that if the use of territorial rating is banned in the state, most Californians will see their auto insurance rates increase in order to defray the costs of insuring drivers in high-risk metropolitan centers."

The study, in particular, found that metropolitan areas with high accident frequencies?such as San Francisco, which had 5.29 property damage liability claims per 100 insured cars between 1998 and 2000?also had high claim costs per insured car.

Average cost to carriers insuring property damage liability for cars in San Francisco, for example, was $131.14, much higher than the $100.28 average for the state. IRC said that this is because high numbers of auto insurance claims drive up the per-vehicle costs of insuring cars in metropolitan areas.

Ms. Sprinkel noted that in comparison, there is an average of three auto accidents in San Francisco for every auto accident occurring in California's rural Modoc County. "Because of higher accident frequency, the cost of insuring drivers in major metropolitan centers is dramatically higher compared to other areas of the state," she observed.

Furthermore, the study also discovered that the likelihood of auto accident victims to file bodily injury liability claims is much higher in the metropolitan centers.

The study noted, for example, that auto accidents in the city of Glendale, in Los Angeles County, are three times as likely to result in bodily injury liability claims when compared to accidents in California's rural Mono County. Specifically, Glendale's ratio of bodily injury liability claims filed per 100 property damage claims was 56, while the ratio for the Mono County Mono was found to be 19.3.

The study also added that in the case of Los Angeles, claimants in this metropolitan area who had minor injuries were more likely to seek medical treatments?including the use of chiropractors, physical therapists and orthopedists?have diagnostics performed and hire attorneys, when compared to claimants from other parts of the state.

Ms. Sprinkel told NU that one reasonable explanation for this discrepancy is that people in urban areas have better access to medical facilities as well as lawyers at their finger tips. "Another possibility is that people in urban areas are more aware of their ability to make insurance claims from using such treatments after accidents," she said.

Ms. Sprinkel added that it is clear that the regional costs of compensating accident victims are influenced by factors in addition to accident frequency. "Claiming behaviors can contribute to auto injury claim frequencies and to the overall costs of providing auto insurance. Differences in the use of medical treatment and the cost of that treatment also play a role," she noted.