AB 1488 discriminates against the poor and uninsured and violates state law. Under the proposal by Mercury Insurance, insurers will be allowed to continue a reputed “discount” to drivers who switch from another company to theirs; it will be paid for through a surcharge on those who have not been insured. If consumers who had prior insurance coverage get a discount, previously uninsured drivers pay more. That is why Insurance Commissioner Harry Low is writing rules to stop this practice and why the Commissioner opposes AB 1488.
1. So-called “Portable Persistency” creates a barrier for poor people trying to purchase insurance
The industry’s proposal would allow insurers to charge previously uninsured motorists more for auto insurance. The basic premise of insurance ratemaking is that it must be a zero sum game. Therefore, in order to offer a discount to previously insured drivers, the company must surcharge previously uninsured motorists. Under AB 1488, even if all other characteristics were equal, a low-income driver who is seeking to enter the insurance market would be forced to pay a higher premium than someone who was previously insured.
2. “Portable Persistency” will keep Uninsured Motorist premiums unnecessarily high for all drivers
By allowing insurers to surcharge low-income motorists seeking insurance, fewer will actually be able to purchase the policy. This leaves more people uninsured and keeps premiums paid for uninsured motorist coverage high, negating the alleged discount.
3. State law prohibits rate discrimination against previously uninsured motorists
The so-called “portable persistency discount” is banned by Prop. 103. State law requires that:
the absence of prior automobile insurance coverage, in and of itself, shall not be a criterion for determining eligibility for a Good Driver Discount policy, or generally for automobile rates, premiums or insurability. [Insurance Code Section 1861.02 (c)]
Consumers entering the insurance market should not be penalized for being previously uninsured, especially in light of industry practices such as redlining and territorial rating, which render insurance unaffordable and unavailable for many Californians. In 1997, a San Francisco Superior Court ruled that then-Commissioner Quackenbush must stop companies from discriminating against the previously uninsured.
4. Rating factors must be developed by the Department of Insurance
The proposal to allow insurers to use this persistency factor, or any such rating factor, must be brought before the Department of Insurance, rather than the legislature. Proposition 103 requires that auto insurance rates are set according to “factors as the commissioner may adopt by regulation that have a substantial relationship to the risk of loss.” [Ins. § 1861.02 (a)(4)] The Department of Insurance has the technical expertise to determine the actuarial and market implications for rating factors that is not available through the legislative process.
5. The Department of Insurance is about to issue regulations that will finally end insurers’ illegal practices
This bill would undermine the Department’s current investigation into the misuse of the traditional persistency discount. Indeed, the Department of Insurance has a pending regulation that would disallow the “portable persistency” factor used by some by insurers. Mercury Insurance has come to the Legislature with this proposal to undermine the ruling of Commissioner Low.
