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SACRAMENTO, Calif. — California automobile insurers would be allowed to offer discounts to their competitors’ long-term customers under a bill passed July 17 by the state Assembly in a 55-13 vote.

Senate Bill 841, backed by Los Angeles-based insurer Mercury General Group and introduced by Sen. Don Perata, a Democrat, now goes to Gov. Gray Davis, also a Democrat, for approval. Davis vetoed a similar bill, S.B. 689, last year on the advice of then-Insurance Commissioner Harry Low.

The bill would allow companies to offer discounts to policyholders based on the length of time that they have continuously held coverage. Added to the bill since it was last vetoed Davis are amendments that allow policyholders’ coverage to be considered “continuous” if they never spent more than a 90-day period without insurance. Members of the military are granted a maximum exemption of two years.

According to Department of Insurance spokesman Norman Williams, current Insurance Commissioner John Garamendi also opposes the bill and has urged Davis not to approve it.

“Our feeling is that it discourages the people we want to have insurance from getting it, while giving a break to those who already have ready access to it,” Williams said. “This has the potential to exacerbate a problem of uninsured drivers in a state where that is already a formidable problem.”

The bill also is opposed by a number of consumer-advocacy groups, including the Foundation for Taxpayer and Consumer Rights. If Davis approves the bill, the foundation has threatened to
lodge a lawsuit challenging the measure, on grounds that it violates the 15-year-old Proposition 103 that sets the specific factors that insurers may use in determining rates and eligibility for auto insurance.

“You can’t counter a proposition passed by the people of the state with legislation passed by the Legislature. That’s part of California constitution, that if you want to counter a proposition, you have to do it by passing another proposition.” said Douglas Heller, senior consumer advocate for FTCR.

According to the bill’s text, “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.” However, the bill provides that an insurer “may use persistency of automobile insurance coverage with the insurer, an affiliate, or another insurer as an optional rating factor.”

George Joseph, Mercury‘s chief executive officer, said Davis hadn’t yet given the company any feedback his intentions this time. Representatives of Davis weren’t immediately available for comment. According to Joseph, Mercury‘s involvement in the issue began nine years ago, when it first proposed providing a “persistency” discount to its customers on the basis of how long they’d held their policies. However, Joseph contends, the commissioner’s office, then as now headed by Garamendi, told him this would be construed as discriminatory toward outsiders. To overcome this objection, Joseph said, the same discount was extended to new customers who had been with their previous insurers a comparable length of time.

It was only in the past two years, he said, that the commissioner’s office, first under Low and now again under Garamendi, determined that the discounts were inappropriate.

“Low said we’d have to go back to just having it based strictly on loyalty, which ironically was all we wanted in the first place,” Joseph said. “But at this point, I think the proposal in the bill is better, because it encourages competition between the companies. If you had it the other way, that would tend to lock them in to the companies they’re already with.”

But according to Heller, Mercury has already been flouting the very law it now is lobbying to change.

“I got a quote for myself through Mercury‘s Web site as someone with a good driving record and having a policy for five years with the same company, and came up with annual premium of $1,270, but just by changing the one factor and saying that I didn’t currently hold insurance, it would have been $1,800,” Heller said. “That’s discriminatory against those who may go through a period where they simply can’t afford the insurance, and any law that treats it as reasonable is simply bad public policy.”

According to A.M. Best Co.’s state/line data, California’s top five writers of private-passenger auto policies in 2002 were State Farm, with a 13.8% market share based on direct premiums written; Zurich/Farmers, with 11.4%; California State Auto Group, with 9.2%; Allstate Insurance, with 9.1%; and Automobile Club of Southern California, with 8.8%.
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Consumer Watchdog
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