Redistribution of Car Insurance Premiums?

September 24th, 2009 by Lloyd Pro Group Inc.

If you didn’t know by now, your Atlanta car insurance premiums are rated by the zip code you live in. We commented on this recently in a post we did on how car insurance rates are calculated. Be assured that Georgia insurance agencies like Lloyd Pro Group do not make the rules about zip codes and auto insurance.

However, in a bold move to try to “equalize” the premiums people pay for their car insurance a group of Democratic congressmen in Milwaukee are trying to push through a law that ignores zip codes and does not penalize people for what area of town they live.

Apparently the cost of insuring the vehicle in some areas of Milwaukee can be anywhere from 40%-60% higher than others, depending on the vandalism, theft and claims in that area.

Their hope is to “outlaw” the use of zip codes for rating insurance in Milwaukee by early as next year so that everyone pays the same thing no matter where they live.

Notice what this article says:

“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.”

As you can imagine, this has caused quite a stir in Milwaukee as the people learn about this proposal. It has also caused a stir among car insurance companies through out the nation.

The article goes on to state that the Governor of Milwaukee has no intention of  signing off on it.

Here in Atlanta there is not even a hint of such a proposal. However, it does raise a lot of questions doesn’t it?

  • Should people who live in certain areas be penalized for theft, vandalism and excessive claims?
  • Should other zip codes be rewarded for no crime and low claims?
  • Should zip codes that have low crime be forced to pay higher premiums to offset or equalize the areas that have higher crime?
  • While the redistribution of wealth has been a controversial topic in the news, is this just another way of  having a redistribution of premiums?

While this is a question that can only be settled by Insurance writers and government, we would be interested in your thoughts about a redistribution of car insurance premiums. Please post your comments below.

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