Friday, April 2, 1993
Home Edition
Section: Business
Page: D-1
2 Insurance Firms Accused of 'Redlining'; Reforms:
Farmers and State Farm 'do not serve the low-income and
minority areas of Los Angeles,' Commissioner John
Garamendi tells a House subcommittee.
By: ROBERT A. ROSENBLATT
TIMES STAFF WRITER
California Insurance Commissioner John Garamendi on
Thursday
accused the state's two biggest automobile insurers,
State Farm and
Farmers Insurance Group, of selling far fewer policies in
minority and
low-income Los Angeles neighborhoods compared to sales in
more affluent
areas.
The companies "just don't have agents in these
communities as (they
do) in other parts of the state," he told a House
subcommittee that is
considering insurance reform legislation. "Our
cities will rot and decay
if insurance is not available to people who live
there."
His attack on the two major firms was based on an
extensive
computerized study of 90% of the auto insurance policies
sold in the
state, arranged by ZIP codes where the cars are garaged.
Posters displayed in the hearing room showed huge ZIP
code maps of Los
Angeles, with patches of deep red covering much of
South-Central and East
Los Angeles, to illustrate the low level of sales.
"The maps show redlining exists in
California--particularly in Los
Angeles," said Garamendi, referring to a discredited
and illegal practice
of drawing a line on a map and refusing to do business in
that area.
He was not accusing the firms of a formal geographic
discriminatory
policy, but said that their sales results amounted to the
same thing: "de
facto redlining." "The truth is Farmers
Insurance and State Farm do not
serve the low-income and minority areas of Los
Angeles," Garamendi told
the insurance subcommittee of the House Banking
Committee.
State Farm, with 19.7% of statewide sales, had less than
4% of the
market in the general areas of South-Central Los Angeles,
East Los
Angeles and Hollywood, according to Garamendi's office.
Farmers Insurance
Group, accounting for 10.6% of sales in California, had
less than 2% of
sales in the same ZIP codes.
The companies strongly denied Garamendi's accusation.
If Garamendi "weren't . . . all but declaring for
governor, he would
honestly address the fact that until we can control the
factors that are
raising the cost of insurance, we won't see a lot more
policies sold to
low-income families," said John Millen, director of
media relations for
Farmers Insurance in Los Angeles, the biggest
California-based home and
auto insurer.
"You can have an agent on every doorstep, but if
people can't afford
an insurance policy they aren't going to buy it," he
said. Garamendi is
"acting like there's some sort of conspiracy, but
we're a business. If we
can make a profit, we will sell it," said Millen,
noting that his company
is the leading seller of property insurance in the area
hit by last
year's riots.
"The problem is affordability, not
availability," said Bill Sirola, a
spokesman for State Farm, based in Bloomington, Ill.
"As presently designed by the Legislature, the auto
insurance policy
is unaffordable to a great many people in California, not
just urban
areas but in rural areas," he said.
"There is not one area in the state where we are not
selling
policies," Sirola said. Neighborhood and race
"have no bearing, they are
not involved in any way."
*
Auto insurance prices vary widely by location, with the
highest
charges in some of the poorest neighborhoods. The average
premium paid by
a 30-year-old driver with no record of violations would
be $988 in
Pacific Palisades (90272 ZIP code), $848 in Inglewood
(90045 ZIP code)
and $1,464 in South-Central (90044 ZIP code), according
to figures
compiled by Garamendi's office for the 14 biggest
insurers in the state.
Garamendi's criticisms of auto insurers were echoed by
fellow
regulators from Missouri and Texas.
"We should not become too caught up in whether
underserved markets are
occurring deliberately or whether they have somehow
occurred, because the
adverse impact on the public remains," said Allene
Evans, a member of the
Texas Board of Insurance. "And, ultimately, if the
market does not serve
the needs of consumers, it will eventually wither and
die."
In other matters, Garamendi endorsed a bill being
considered by the
subcommittee that would provide federal regulation of
foreign insurers
operating in this country.
There are $20 million to $30 million in unpaid claims by
property
owners whose businesses were destroyed or damaged in last
year's riots,
but who were insured by "scam" foreign firms,
he said. "When these
businesses went to collect in the wake of last spring's
disturbances,
many were wiped out when they found their policies to be
worthless," he
said.
Descriptors: REDLINING; STATE FARM INSURANCE CO; FARMERS
INSURANCE GROUP; INSURANCE INDUSTRY -- LOS ANGELES;
MINORITIES
Copyright (c) 1993 Times Mirror Company
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