Bill Would Zap ZIP Codes As Rate Factor Aim is to Lower Car Insurance Premiums in City

All other factors being equal, car insurance would cost the same whether you lived in a high-risk area in Milwaukee or a sparsely populated rural town under a proposal in the state Legislature.

Some Democratic legislators have revived the plan even though Gov. Jim Doyle vetoed a similar measure that was included in the latest state budget.

Generally, the cost of insuring a vehicle can be 40% to 60% higher in the state's most heavily populated areas, unless a credit score -- itself a controversial and influential measure -- is a mitigating factor, one longtime Wisconsin insurance professional said. The risk of thefts, vandalism and accidents typically is higher in densely populated areas.

Proponents of the plan to eliminate ZIP codes as a factor in setting rates contend that with mandatory car insurance taking effect next year, insurance should be priced more evenly across the state.

"We're just trying to make it affordable. We want people to comply and go out there and get insurance, and this is one of the barriers," said state Rep. Leon Young (D-Milwaukee).

The insurance industry is opposing the bill, saying premiums would go up for motorists in less-congested areas if it becomes law. The current system is fair because it lets companies charge more where the risk and cost of auto insurance claims are higher, insurers say.

"If insurers can't use ZIP codes, it would just be a redistribution of premium -- plain and simple," said Steve Witmer, a spokesman for Madison-based American Family Insurance, the state's largest insurer of autos.

In addition to ZIP codes and credit scores, insurers look at factors such as driving records, the number of miles driven in a year, the customer's age, the type of car and amount of coverage in setting premiums. According to the Insurance Information Institute, insurers also consider local trends such as the number of accidents and car thefts in areas where customers live.

State Sen. Tim Carpenter (D-Milwaukee), the author the bill prohibiting what he calls "ZIP code discrimination," said constituents in his south side district have reported bizarre cases of their auto insurance premiums dramatically increasing after moving nearby where the ZIP code was different.

"This makes no sense," Carpenter said in a statement. "I don't think good drivers should have to pay extra because other parts of their ZIP code -- which could be miles away -- may have higher crime rates or more irresponsible drivers. My bill will make sure that auto insurance premiums will be based upon the driver's record, the years of experience a driver has behind the wheel, and the miles driven, not ZIP codes."

Doyle vetoed provision

In June, when he vetoed the ZIP measure from the state budget, Doyle said the provision would be "disruptive to the market and would increase premiums for policyholders in many locations." Doyle said he would ask the commissioner of insurance to study the issue to ensure fair treatment of citizens through the state.

In the same bill, Doyle approved mandatory auto insurance, which will be required in Wisconsin starting June 1. That's why the issue needs to be considered again, this time separately from the budget, Young said.

Young said premiums must be low enough so people can afford them and don't end up disobeying the law. He said insurers could spread out the risk across the state.

"Quite frankly, if you spread it out, would it not be fairer?" Young said. "To us in Milwaukee, it's unfair. You make us in Milwaukee have a higher premium than people outside of Milwaukee."

Mark Lindow, a general partner with Pewaukee-based American Advantage Insurance Group, said he believes where a person lives should be a factor in setting premiums because no matter how careful a driver may be, more accidents and claims occur in certain ZIP codes, and even that careful driver is subject to the risk there. Lindow said there is no question that rates go up as the density of the population increases.

"If you are looking at somebody who is moving from central Wisconsin to the inner city . . . he's going to be paying 40% to 60% more than he's used to," Lindow said. "If he's moving from Waukesha to the inner city, he's going to have probably a 25% increase. That's a generalization because the credit score can mitigate that to a certain extent."

Andrew Franken, president of the Wisconsin Insurance Alliance, said "any time you change the playing field, there are going to be winners and losers.

"If you remove territorial rating or ZIP code rating, there will be more losers than winners across the state," Franken said.

As for whether Doyle would reconsider the provision, a spokesman for the governor said it's too soon to say.

"The governor's just going to have to take a look at whatever bill might reach his desk," said Lee Sensenbrenner.