SACRAMENTO — Consumer advocates are asking a judge to overturn a new law that allows discounts for longtime auto insurance customers who change insurers, saying the statute violates Proposition 103 and discriminates against newly insured drivers.
“Proposition 103 says very explicitly that insurance companies cannot use the question of whether a driver has previously had auto insurance against them,” Doug Heller, senior consumer advocate for the Foundation for Taxpayer and Consumer Rights, said Wednesday.
“The reason is to protect particularly low-income drivers, but also anybody that has not had insurance in the past, but wants to get into the market,” Heller said. “The goal is to have more people have insurance.”
Proposition 103, approved by California voters in 1988, requires auto insurers to base their rates mostly on a motorist’s experience, safety record and miles driven. It specifically bars using the fact that a driver has had a break in coverage or hasn’t had insurance before as factors in determining rates.
The state insurance commissioner has ruled that prohibition doesn’t stop companies from offering so-called persistency discounts to their own longtime customers.
The new law, signed by Gov. Gray Davis on Sept. 2, allows an auto insurer to offer those discounts to new customers who have a record of maintaining coverage with a competitor.
Supporters say the change, which took effect immediately after Davis signed it, will help consumers by encouraging competition among insurance companies.
But the law’s critics say the discounts for one group of motorists will translate into higher rates for others, mainly low-income drivers who have trouble paying for and keeping coverage.
“It means that people who are trying to get into the insurance market will pay hundreds of dollars more for insurance than if this law is struck down,” said Heller.
Heller’s group was joined by Consumers Union, Public Advocates, the Southern Christian Leadership Conference and the National Council of La Raza in filing a lawsuit in Los Angeles County Superior Court challenging the law.
A hearing on the suit is scheduled for Nov. 25.
Heller said insurance companies have been able to justify to the commissioner that their own longtime customers deserve discounts because those motorists cost less in terms of advertising and other factors.
But that’s not the case with customers coming over from another insurer, he said.
George Joseph, chief executive officer of Mercury Insurance, the new law’s chief supporter, said Mercury was told several years ago by the Department of Insurance that offering persistency discounts only to its own longtime customers was discriminatory.
“We have been through the wringer,” he said. “All we are trying to do is get back to a position that was previously approved by the department and had been in effect for many years.”
Heller’s group claims the law breezed through the Legislature and was signed by Davis because Mercury Insurance has given more than $895,000 in campaign contributions to lawmakers and the governor over the last two years.
Joseph said the recent donations were nothing unusual. “If you looked at Mercury‘s contributions over the last 30 years you would hardly find a year where Mercury did not support 50, 60 or 70 members of the Legislature,” he said.
Davis vetoed a nearly identical law last year, saying then-Insurance Commissioner Harry Low told him it would violate Proposition 103.
But he decided to sign this year’s measure, saying it would further the intent of Proposition 103 by encouraging competition.
Davis spokesman Steve Maviglio said attorneys for the governor and the Legislature supported the move.
“We are confident that millions of Californians will benefit from lower rates and the courts will agree with the Legislature, the legislative counsel and our attorneys that the law is sound,” he said.
The new law allows persistency discounts even if a motorist has a lapse in coverage of up to two years because of absence from California for military duty and up to 90 days in the last five years for any reason.
On the Net: Read the bill signed by the governor, SB841, at http://www.senate.ca.gov