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News: 2004 Commissioner's Report on Underserved Communities

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Introduction

The Community Service Statement originated from regulations, promulgated by Insurance Commissioner Garamendi in 1991. These regulations resulted from the efforts of the California Department of Insurance (CDI), consumer advocates and the insurance industry. The purpose of the regulations is to address the issue of availability of insurance in "underserved" communities and to promote anti-discrimination so that all have equal access to insurance coverage in California.

The current Community Service Statement regulations require the CDI to collect and analyze data from home, personal auto, commercial multiple peril and commercial fire insurers in California, in all ZIP codes identified as "underserved".  Underserved ZIP codes are those in which the proportion of uninsured motorists is ten percentage points above the statewide average, the per capita income of the community (as measured in the most recent U.S. Census), is below the fiftieth (50th) percentile for California, and the community (as measured in the most recent U.S. Census), is predominantly minority.  The Commissioner collects and reports earned exposures for the affected lines, as well as the number of agents and service offices in the underserved areas as a percentage of statewide totals for each insurance company.

The California Code of Regulations (CCR), Section 2646.6 became effective May 20, 1994 but soon thereafter, changes were made to the regulation that added Sections 2646.7 and 2646.8. These changes allowed insurers to opt out of reporting data under CCR 2646.6 that would be necessary to determine an underserved community, by instead filing a "strategic plan" for serving underserved communities or by providing "evidence" demonstrating an existing presence in the underserved communities. In addition, in 1999 a lawsuit brought by several insurance companies challenged the public's right to access company data, claiming trade secret protection. Several appeals later, the courts determined that the Community Service Statement data are indeed public records and not trade secret.

March 15, 2003 amendments to the regulations eliminated certain substitute reporting requirements (Sections 2646.7 and 2646.8) that simply did not provide the necessary tools for the Commissioner or the industry to properly analyze areas that were underserved.

Under the latest version of the regulations, the Commissioner must report those communities within California sorted by ZIP code that the California Department of Insurance finds to be underserved by the insurance industry. This report represents roughly 97% of the home, personal auto and commercial multiple peril and commercial fire market. It demonstrates that 147 communities in California are underserved as defined.

About this Report

This report consists of five tables (Tables A through E):

Table A - ZIP Codes in UNDERSERVED COMMUNITIES
This table lists the communities in the state of California, by ZIP code, that fall within the definition of underserved pursuant to Section 2646.6(c)(1)(A) of the CCR (see below). All three criteria must be met for a ZIP code to be deemed underserved.

Per Section (c) of CCR code 2646.6, a community shall be deemed to be underserved by the insurance industry if the Commissioner finds:

 

                   a)  the proportion of uninsured motorists is ten percentage points above the statewide average as reflected in the most recent Department of Insurance statistics regarding the statewide average of uninsured motorists; and
b)  the per capita income of the community, as measured in the most recent U.S. Census, is below the fiftieth (50th) percentile for California; and
c)  the community, as measured in the most recent U.S. Census, is predominantly minority. Predominantly minority community can be qualified as any community that is composed of two-thirds or more minorities as those groups are defined in subsection (b)(6)(A) through (D) of CCR Code 2646.6.

 

The Department identified 147 ZIP codes that were underserved in 2003. In 1998, the Commissioner's Report of Underserved Communities identified 138 ZIP codes. For this report, 38 new ZIP codes were added and 30 ZIP codes were removed. Reasons for the addition or deletion are due to the changes in ZIP code demographics that are based on the three criteria used to determine an underserved.

Table B - Summary Statistics and Fact Sheet
The purpose of this table is to summarize the number of earned exposures statewide and in the underserved communities.  The table also includes the following information for reference: 

  • the number and percentage of registered vehicles in the underserved communities;
  • the population size and its percentage that is in the underserved communities

The statewide uninsured motorist rate drops to 14% in 2003 from approximately 21% in 1997 and the per capita income's 50th percentile (median) in the state of California is $20,286[1].

The uninsured motorist rate must be 10 percentage points above the statewide uninsured motorist rate to trigger one of the criteria. The other two criteria are per capita income below the statewide median of $20,286 and a minority percentage above two-thirds. All three must be met to label a ZIP code underserved.

Table C - Number and Percentage of Earned Exposure per Company
The purpose of this table is to provide total earned exposures, statewide and in the underserved communities, per company and their percentage of total earned exposures in the underserved communities. The report represents approximately 97%[2] of the insurance market for the lines of business considered under the Community Service Statement. This table is comprised of three sections, one section for each category of insurance business - real and personal property, private passenger auto, and commercial multi-peril and commercial fire. Each section consists of aggregate totals for the companies listed alphabetically and reports the coverages that are written by the company.
 
 
Table D - Service Office Data per Company
The purpose of this table is to provide the number of service offices per company in California and in the underserved communities and their percentage of service offices in the underserved communities. The table lists the companies alphabetically and reports the largest number of service offices reported under the lines of business considered in the Community Service Statement for each business type - personal and/or commercial. A service office consists of sales, marketing and/or claims services. Note that a service office can manage both business types and that a service office can represent multiple individual companies within the same parent company.
 
Table E - Agent / Agency Data per Company
The purpose of this table is to provide the number of agents or agencies throughout the state of California and within the underserved communities that are contracted to write insurance for the companies listed alphabetically and their percentage of agents or agencies that are in the underserved communities. The table reports the largest number of agents or agencies reported under the lines of business considered in the Community Service Statement for each business type - personal and/or commercial. Note that an agent or agency can manage both business types and that an agent or agency can represent multiple individual companies within the same parent company.
 
It is important to note that the number of agents or agencies will differ greatly between companies due to the different marketing techniques that each company incorporates. The three major marketing techniques are: captive, independent, and direct. Also, some companies provided the number of agents, whereas, others provided the number of agencies. Those that write using the direct approach are not included.
 
Conclusion

In 2003, the Community Service Statement saw some changes that will allow the Commissioner and the industry to make better use of the data collected so that the underserved has the opportunity to be safeguarded against a financial loss.
 
A few noteworthy observations, the large percentage of dwelling fire business, most notably California FAIR Plan, and assigned risk auto written in the underserved community indicate that low income, high minority communities are not only being underserved but those that do buy insurance are purchasing insurance that offers less coverage.
 
There are many reasons why people do not get insurance and this report can not address that. However, the Commissioner is determined that this report will encourage the industry to invest and make insurance accessible and affordable in the underserved communities. It is also the expectation of the Commissioner that this report will allow legislators and policymakers access to data so that they can use to make public policy that addresses disparities in availability and affordability of insurance.
 
Contact Information

Any questions or comments regarding the methodology of the data collection presented in this report may be forwarded to Ben Gentile, Division Chief - Statistical Analysis Division at (213) 346-6316.
 
 

[1] Per capita income was estimated by Western Economic Research.

[2] 97% of the market represents data that has been through an extensive validation process and are considered reasonable. 3% of the market either reported data that failed our validation or plainly did not comply with the regulation.

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