Consumer advocates hailed California Insurance Commissioner John Garamendi's announcement that he will issue regulations requiring insurance companies to set premiums based on how a motorist drives, not where he lives.

Proposition 103, the sweeping 1988 insurance reform initiative, requires that insurance companies count a motorist's driving safety record, miles driven annually and years of driving experience more than any other factor, including ZIP-code, when they set auto premiums. Implementation had been hung up for years by industry challenges.

"This is an important milestone in the long-standing effort to make auto insurance more affordable, fair and just for Californians," said Harvey Rosenfield, the author of Proposition 103, on behalf of the Foundation for Taxpayer and Consumer Rights.

"Under the arbitrary and outdated zip code-based system, good drivers across the state often pay higher insurance premiums than bad drivers. Today's decision means that a motorist's auto insurance premiums will be determined by how carefully a person drives and how much they drive, not where they live," Rosenfield said. "That's the only fair way to set rates in a state where people are held responsible when they cause an accident."

Under the current system:

• When a good driver moves from ZIP code 90045 in Los Angeles to ZIP code 90044 in Los Angeles, one major insurer increases her annual premium from $2,522 to $4,066.

• One insurer charges good drivers in the rural town of Terra Bella in Tulare County 20% higher premiums than drivers in the far more densely populated Thousand Oaks.

• A San Diego driver with a perfect record living in the tourist mecca of Coronado 92118 who moves to nearby San Diego 92102 faces a rate hike on their basic liability auto insurance of 33% from a major insurer.

• One insurer charges a 45-year-old good driver living in Placerville $349 more per year if he is single or a widower than if he is married.

Commissioner Garamendi's decision came after a lengthy investigation urged by citizen and community groups in 2003. That petition was filed by FTCR, Consumers Union, Southern Christian Leadership Council of Greater Los Angeles; Foundation for Taxpayer and Consumer Rights; National Council of La Raza; Spanish Speaking Citizens' Foundation; City of Los Angeles; City of Oakland; and City and County of San Francisco.

Though a recent industry study acknowledged that zip codes are a poor way to set insurance premiums, insurance companies have bitterly fought Proposition 103's "good driver" requirements since the initiative was first proposed.

In their $80 million campaign, insurers claimed that rates would go up, rather than down, if the reforms were implemented. But an exhaustive, eighteen-month study by the Department of Insurance found that if Proposition 103 were properly implemented, throughout the state good drivers and motorists who drove fewer miles per year would see lower rates.

Approved in 1988, Proposition 103 applies to all forms of property-casualty insurance. It mandated rate rollbacks that resulted in $1.2 billion in refund checks; regulates the profits and expenses of insurance companies under a "prior approval" system that by 2001 had saved Californians $23 billion in auto insurance increases alone; allows consumers to challenge insurance company abuses in the courts; applies the antitrust and civil rights laws to the insurance industry; and made the commissioner an elected position.