Major Calif. Auto Insurer Champions Prop. 17

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SACRAMENTO, Calif. (AP) — The insurance company that placed
Proposition 17 on the June ballot says it did so to save money for most
policyholders. The consumer-advocacy groups opposing it say that’s
merely a smokescreen.

What the company, Mercury Insurance, really wants is to undermine a
provision of a voter-approved insurance initiative passed in 1988, said
Harvey Rosenfield, founder of the Santa Monica-based group Consumer
Watchdog. That would allow it to assess a surcharge on drivers who seek
to restart auto insurance coverage after dropping it temporarily.

He urged voters to apply a simple test when deciding how to vote on
the initiative.

“The question voters will ask themselves is, ‘Since when has an
insurance company spent millions of dollars to save me money?’”
Rosenfield said.

The Yes on 17 campaign has been bankrolled by Mercury Insurance, the
third largest auto insurer in the state. Its parent company, Los
Angeles-based Mercury General Corp., had poured $10 million into the
campaign as of May 13, nearly all the money supporting the initiative.

Mercury Insurance officials declined to say why the company
introduced Proposition 17. Instead, a spokesman issued a written
statement that mirrored the ballot arguments in the pamphlet sent to
voters, saying the company intends to fix what it describes as a flaw in
state insurance law.

“The 80 percent of responsible drivers who maintain automobile
insurance should not be penalized and lose their discount just because
they change insurance companies,” wrote Coby King, a Mercury spokesman.

The proposal would have two main effects. One would allow insurance
companies to award discounts to drivers who have a record of maintaining
auto insurance without a lapse in coverage, regardless of whether they
switched companies. Under current law, drivers who maintain auto
coverage with one insurance company are eligible for the continuous
coverage discount — rewarding them for their loyalty — but companies
cannot penalize those who previously allowed their auto coverage to

Mercury Insurance says it wants to make that discount “portable” and
thus spread the benefit. In the ballot arguments, the initiative’s
supporters wrote that drivers who maintain continuous coverage could
enjoy discounts as large as $250 a year.

Opponents say insurance companies would make up for those discounts
by imposing a surcharge on other drivers.

They say Proposition 17’s second effect would be the ability to
charge a fee on anyone who had a lapse in auto insurance coverage for
more than 90 days, whether it was due to illness, unemployment or
military service within the country. Military personnel who served
abroad would be exempt from the surcharge.

“If an insurer offers a continuous discount for some drivers, it will
result in a surcharge for other drivers,” the state Department of
Insurance wrote in an analysis of the initiative.

The remaining 20 percent of customers would be levied a surcharge of
up to $1,000 to make up the difference, said Mark Savage, senior
attorney at Consumers Union, the nonprofit group that publishes Consumer
Reports. It’s not clear whether such a surcharge would be assessed once
or over a period of years.

In tough economic times, some drivers stop using their cars and drop
coverage to save money, Savage said.

The practice of basing insurance rates on a driver’s history of
coverage was outlawed 1988, when voters passed Proposition 103. At the
time, insurance companies were charging high premiums for drivers who
had a lapse in their coverage for any reason.

Under Proposition 17, policyholders would qualify for the continuous
coverage discount if their coverage had not lapsed for more than 90 days
over the previous five years, unless the lapse was because they failed
to pay the premium.

If the lapse was due to military service overseas, the driver would
still be eligible for a discount. But opponents say a service member who
dropped coverage to attend boot camp, for example, could get stuck with
the surcharge when reapplying for auto insurance.

The United Services Automobile Association, a company that serves
military personnel and their families, opposes the proposition because
of the potential negative effect on military personnel.

Among the initiative’s supporters is the California Chamber of
Commerce, which says it will increase competition in the market and
drive down insurance rates.

Consumer Watchdog
Consumer Watchdog
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