Bill backed by major donor overcomes commissioner’s opposition

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Associated Press State & Local Wire

SACRAMENTO — A Senate committee Wednesday approved auto insurance rate legislation backed by a major campaign contributor – despite claims the bill would violate voter-approved Proposition 103 and hurt the poor.

The bill, supported by Mercury Insurance, would allow an insurer to offer discounts to customers who have a record of maintaining auto coverage with another company.

Current state regulations allow insurers to offer “loyalty discounts” to their longtime customers, but not to new customers with a record of keeping up their coverage with a competitor.

Critics say the bill is being pushed by Mercury because the company, which has handed out nearly $2 million in campaign contributions since the start of 2000, wants to be able to use such discounts to lure middle-class customers away from competitors.

“Is this bill really about good policy or is it about a company that has given $1 million to the Democratic Party since 2001?” asked Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights.

The opponents say insurers will make up for the “persistency discounts” allowed by the bill by raising their rates for new customers whose auto insurance has lapsed, including low-income motorists who are trying to get insurance after not being able to afford it.

Gov. Gray Davis vetoed an attempt by Mercury to allow such discounts last year, saying then-Insurance Commissioner Harry Low told him the bill would violate Proposition 103.

The 1988 ballot measure says the absence of prior insurance cannot be used as a factor in setting a customer’s rates.

The bill also would violate a provision of 103 that gives the commissioner the power to decide which other factors can be used in setting insurance prices, said Reid McClaran, an Insurance Department representative.

But Sen. Jackie Speier, who chairs the Senate Insurance Committee, suggested the bill would come under the Legislature’s authority to amend 103 if it furthers the ballot measure’s purposes.

She said the persistency discount authorized by the bill was just a “broader form” of the loyalty discounts allowed by state regulation.

“I don’t care how many consumer groups come up here and say they’re opposed to this bill,” she said. “Consumerism is about shopping around for the best deal.”

But Norma Garcia, a representative of Consumers Union, said that “erecting barriers to uninsured persons becoming insured, that’s not in the furtherance of Proposition 103.”

McClaran said former Insurance Commissioner Chuck Quackenbush, who resigned in 2000 under the threat of impeachment, allowed a transferable loyalty discount, but that his two successors, Low and the current commissioner, John Garamendi, didn’t.

McClaran said insurers had demonstrated they saved money when they kept longtime customers, but hadn’t convinced Garamendi the same savings existed for a customer that changed insurers.

The bill’s author, Sen. Don Perata, D-Oakland, said the measure would help low-income drivers who maintain their auto policies and are able to find cheaper coverage with another insurer.

“They are real people we’re talking about,” he said. “Not some mythical group.”

He bristled at Court’s suggestion that the bill was moving because of Mercury‘s campaign donations, suggesting that amounted to an attack on Senate President Pro Tem John Burton, D-San Francisco.

Perata aid he would put up Burton’s record “on behalf of the poor and dispossessed against anybody who spoke here today. This man built a career fighting for poor people.”

Kathleen Snodgrass, a lobbyist for Mercury, said the company was “just trying to pass legislation which would allow for greater competition in the marketplace.”

The Insurance Committee’s 7-0 vote sent the bill to the full Senate.


On the Net: Read the bill, SB841, at

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