1.  Less people in “bad” neighborhoods paying for comprehensive and just buying State minimum liability instead

2.  Less people in “bad” neighborhoods buying insurance at all, raising everyone else’s rates

Careful what you wish for, Sen. Goodman and the Insurance industry.

There are neighborhoods where there might be a higher cost of doing business. Other neighborhoods might have lower costs. If there is historical data that assists in determining the cost of doing business in one neighborhood versus another is higher or lower, why shouldn’t they be allowed to factor that into their costs? If another business thinks they can do it better or more cheaply disregarding neighborhood let the market create that efficiency.

Interesting enough though that Woodward said “as long as he can be guaranteed that his rates won’t go up, he could support the plan”.  So if it is determined that actuarially speaking his rates should be higher based on his location, that he feels the plan shouldn’t pass.  Sounds like he doesn’t want fairness, but just wants the cheapest insurance, even at the cost of others.

I can understand where he is coming from… nobody likes high bills, but I wonder what his true intentions are.

Also, some other coverages may cost more in higher crime areas due to more people not having insurance.  If more people don’t carry auto insurance because they can’t afford it, then the portion of insurance that covers for uninsured motorists costs more in those neighborhoods.
 
I’m not trying to argue in favor of the insurance companies.  Growing up in a very low-income socioeconomic class, I do fully appreciate the burdens that are had and the seeming unfairness involved.  One thing I’d like to point out is that insurance companies are truly trying to price based on the risk.  It isn’t as if there are a bunch of white men sitting around saying “ohh let’s charge this group of people more”  Location is one statistically significant area that determines risk, but it doesn’t tell most of the story.  People may be surprised to know that price deviation based on location usually doesn’t vary more than 10% from the mean, and sometimes the city is cheaper.  People who live and drive within the city generally have accidents that are of low severity because speed limits are much slower, whereas people who live in the suburbs drive on the highway where there is a much greater chance for severe accidents.  A bumper may cost $3,000 to fix, but hospital bills and intisive surgeries are expensive.

There are hundreds of factors used to price insurance, and most companies have more price points than they do customers.  I know it’s may be hard to believe, but insurance companies really do want to price customers correctly.  That’s how they stay competitive. 

Insurance companies are trying to develop better and better ways to determine risk assessment.  I believe Progressive is testing a system that monitors your driving behaviors (if you speed, if you frequently stop too quickly, etc) as a measure to assess risk.  So the goal really is to try to make pricing as accurate as possible, and that method uses driving behaviors, which I agree, is probably the largest factor of risk.  Even though it may not be possible to know exactly how each person behaves while driving, we can group people together and assess those risks.  Younger drivers, for example, are a higher risk because they have less experience driving.  Insurance companies don’t make this up.
 
That said…it’s interesting to note that my auto insurance actually increased when I moved from Washington, D.C., aka the “murder capital” of the USA, to Westerville, Ohio.  In DC, I lived in a very very high crime area.  No other factors had changed other than location… and my auto insurance in the suburb of Westerville was 10% higher than the semi-automatic weapons all night long DC location.

That’s true, but are you suggesting that the vast majority of claims paid out for auto insurance are based on break in’s and vandalism? Because that seems highly unlikely.
I would assume most break ins and petty vandalism would barely cost more than most people’s deductibles. Wrecking your car on 161 on your way to New Albany is going to cost significantly more than paying to have minor vandalism repaired on your car (and estimating my “risk” based on my neighborhoods characteristics will tell you nothing about my driving behaviour).
This is just another redlining tool to penalize urban neighborhoods. It’s bad enough I have to pay more for my home insurance, but auto too…..

Insurance companies will still have to pay the same amount of claims, and in effect, are required to still bring in the same amount of money to pay those claims.  Basically, they cannot just lower rates and not make up for that money some place else because they still have to pay the same amount of claims.  The lower rates would be off-set by higher rates in other areas, or in effect, zip codes with higher crime rates.

In terms of “State Senator David Goodman says the change would decrease paperwork for insurance companies” this is just used to conceal the true intentions of the change. A rating manual for a common insurance company currently in Ohio (using City based rating approach) is around 9 pages to define the territories.  Using a zip code based approach (in which EVERY zip code must be listed out) uses about 50 pages to define territories.  Also, cities change less frequently than zip codes do.  Every time there is a zip code change by the post office, the insurance company has to file a change to update the zip codes.  Point being that changing to a zip code based rating factor would actually INCREASE paperwork.  But even if there were more or less pages, it largely doesn’t even matter because insurance companies must file their manuals electronically.  So really, this is a guise for the true intentions of legislation.

Also, people need to keep in mind that while driving behavior may not be influenced by where you live, crime does have an impact on insurance.  Comprehensive insurance covers you from theft, vandalism, etc, and the higher the crime, the more claims that are paid out, so the more rate that is needed to pay those claims.

Lastly, I know many people despise insurance companies… but in all realty they cannot  charge more than is actuarially justified.  I know it’s hard to believe… but there are intricate systems in place to prevent insurance companies from over charging, and if they do, they get in big trouble:  http://www.usdoj.gov/crt/housing/documents/nationsettle.php

Insurance companies in their infinite, actuarial wisdom at one point determined one’s credit-worthiness to be an accurate indicator of one’s ‘insurability.’  And thus those with lower ‘insurance scores’ — often a number on a numeric scale of 1 – 10, though it varies from carrier to carrier, and is influenced by a whole slew of other factors, too — pretty much always pay more $.

Where it gets interesting, and this is why it’s important to shop, is that I could personally be in the top tier, insurance-score-wise, with one particular company, and in a middle, less-desirable tier with another company — all at the same time with the exact same credit.

In fact, when I switched agencies a couple years back and quoted coverage on our home and two autos, the difference in annualized premium from the highest to the lowest of the five companies I quoted was over $500. For the same exact coverage.

That’s a nice chunk of change.

It’s all numbers, though.  Whole industry runs on numbers.

That being said, anybody check out the Nationwide iphone app yet?  Actual utility.  From the insurance industry.  Go figure.

If an insurer’s job is to price according to risk analysis, then if your risk of a claim is higher…your premium should be as well.

I don’t think anyone bitches when smokers are charged more for health insurance.

It’s just like the fact that you are most likely to be killed in an accident inside your own home – it doesn’t have so much to do with homes being so dangerous, just that you spend so much time there.

Maybe the roads and intersections are more dangerous in poor parts of town, so the people who live there are most likely to be in wrecks.