PLCaliforniamedium
Following the 10 CCR § 2632.5 reforms implementing Cal. Ins. Code § 1861.02, how must a private passenger auto insurer treat the insured's ZIP code in its class plan?
It may be used only as an optional factor and must carry less weight in the algorithm than each of the three mandatory factors
BIt must be designated and actively used as the single primary territorial rating factor in the insurer's CDI-approved class plan
CIt is completely prohibited from playing any role whatsoever within the insurer's class plan or anywhere in its rating algorithm
DIt may be used freely and without any restriction so long as the insurer demonstrates sufficient actuarial credibility for that territory
Why this is the answer
Cal. Ins. Code § 1861.02(c) bars the use of ZIP code as a 'primary' rating factor. Read together with 10 CCR § 2632.5, this means territory may appear in the class plan as one of the optional factors, but the regulation's 'sequential analysis' requires that the relativity range for territory be less than the relativity range for each of driving safety record, annual mileage, and years of driving experience. Outright prohibition (option c) would conflict with the optional-factor list; primary status (a) is the very practice Prop 103 banned.
Studying for the California Personal Lines exam?
This question comes from our PL bank. Take a free practice test — no signup.