Backers say letting drivers carry discounts from carrier
to carrier would aid most drivers. Foes say the measure would make
rates unaffordable for many new drivers.
In a Yes on 17 radio promotion, actors portraying a couple pondering
their car insurance bills grumble about “the flaw in the law” that
would rob them of a discount if they changed insurance providers.
“I can take these coupons to any store in town but can only use the
insurance continuous-coverage discount with one company? That’s not
fair!” laments the actress playing a penny-pinching wife.
The proponents of Proposition
17 contend that passage would benefit more than 80% of California
drivers because it would allow them to enjoy their continuous-coverage
discounts — as much as $250 a year for some drivers — even if they
switch carriers to take advantage of lower prices elsewhere.
But what insurers give to some clients comes at the expense of
others, say consumer advocates opposed to the initiative bankrolled by
Mercury Insurance Group. They say the measure on the June 8 ballot
would drive up rates for those who gave up driving when they lost their
jobs, got sick, served out of state in the military or just wanted to
help the environment or save money by taking public transportation.
Opponents also contend
that the initiative would make rates unaffordable for many new drivers
and those with tarnished records, boosting the number of uninsured cars
on the road and thereby raising safety risks and eventually premiums
for everyone.
A seemingly simple proposal for making the continuous-coverage
discount portable, Proposition 17 has become one of the more
contentious issues before voters in next month’s primary election,
largely because of the public relations baggage carried into the
campaign by Mercury. In mid-April, state Insurance Commissioner and
gubernatorial candidate Steve Poizner lambasted Mercury, the state’s
fourth-largest auto insurer, for alleged violations of insurance law
dating back a dozen years.
Auto insurance is highly regulated in California, with the Department
of Insurance requiring providers to calculate individuals’ premiums
primarily on the basis of their driving records, the number of miles
driven each year and the number of years they’ve been licensed. An
additional 16 optional factors include a driver’s age, marital status,
residential location and whether he or she has been insured continuously
by the same company, the latter known as a persistency or loyalty
discount.
Portability of the loyalty discount was prohibited by Proposition
103, a 1988 citizen initiative that broadly changed the insurance
industry and required rating factors to be directly related to risk. A
bill passed by the Legislature in 2003, with vigorous lobbying by
Mercury, briefly allowed insurers to offer the persistency discount to
new customers before a state appeals court struck it down as an illegal
revision of the will of the voters.
Consumer Watchdog founder Harvey Rosenfield, who authored Proposition
103 and is active in the Stop Prop 17 campaign, complains about
Mercury’s expenditure of more than $7 million pushing the latest
initiative in hopes of getting voter approval to raise premiums on new
drivers and those reentering the insurance market. The Campaign for
Consumer Rights behind Stop Prop 17 has, by contrast, spent about
$200,000 in contributions.
Joel Fox, Small Business Action Committee president and former head
of the Howard Jarvis Taxpayers Assn., says business groups like the
portability option, anticipating that it would instill more competition
among insurers. He likens the expected effect to what happened in the
telecommunications market when cell phone subscribers were allowed to
take their numbers with them when they switched providers, spurring
carriers to offer unlimited minutes, free texting and other cost-saving
inducements.
Some drivers would benefit, but extending the continuous-coverage
discount to new customers would undermine Proposition 103’s link between
rating factors and risk, said Richard Holober of the Consumer
Federation of California.
“It is discriminatory against people who are down on their luck and
serving their country,” Holober said, adding that those who suspend
their insurance for more than 90 days because they’re not driving — such
as students away at college or military personnel posted out of state —
would have to pay surcharges to reactivate their coverage. The Stop
Prop 17 activists argue in the forthcoming state voters guide that it
could cost returning drivers up to $1,000 more to get insurance if the
ballot measure passes.
That worries voters like Ben Gartner, a Los Angeles teacher who sold
his car and stopped his insurance back when gas was selling for $4 a
gallon. Gartner biked or rode the bus to his job at Roosevelt High
School for a year and a half before deciding he wanted the convenience
of a car again. He fears he could be subject to a surcharge if
Proposition 17 passes because it would allow any lapse in the last five
years to be considered in setting premiums.
“I would feel it was very unfair if I had to pay more for insurance
because I wasn’t driving. I didn’t have anything negative on my driving
record. I did it to save money,” he said.
The Yes on 17 lobby says opponents are using scare tactics.
“California is the most highly regulated insurance market in the
country, with significant consumer protections, and our opponents know
darn well the Department of Insurance would never approve rates with the
surcharges they allege would occur,” said Mike Darrell, executive
director of the Sacramento-based Alliance of Insurance Agents and
Brokers.
Most of the insurance industry has come out in favor of the measure,
with varying degrees of intensity.
Sam Sorich, president of the Assn. of California Insurance Companies,
said the group’s members were divided on whether to take a stand on
Proposition 17. A majority of the board of directors — he wouldn’t say
how large — voted to endorse it in the expectation that it would
increase competition and benefit clients by lowering rates.
But the association doesn’t plan to contribute to the campaign or
actively promote the measure’s passage, Sorich said.
