For a decade now, Mercury Insurance founder George Joseph has been trying to get one big change made to California's landmark insurance law: a discount for customers who switch auto insurance carriers.
Gov. Gray Davis vetoed a Mercury-backed bill in 2002. The voters rejected Mercury-backed Proposition 17 in June 2010 by 4 percentage points.
Now Joseph has returned with Proposition 33, which would allow discounts for people who switch carriers without a lapse in coverage in the previous five years.
Funded almost entirely by Joseph, who has put up $16.4 million so far, the initiative's supporters say it would be a boon to consumers. They would enjoy lower rates and brisker competition.
Consumer groups opposing Prop. 33 say it would lead to higher premiums for some consumers. The initiative would be particularly bad for new drivers and those just returning to the auto insurance market after years away.
Carmen Balber of Consumer Watchdog, a leading opponent, said that in states such as Florida where such discounts are legal, surcharges on drivers who don't qualify reach as high as 103 percent. She conceded surcharges could not go that high in California because of state regulations, but suggested they could hit 40 percent for new drivers.
"Scare-mongering," answers Terry McHale, a spokesman for the Yes on 33 campaign. It can't happen here, and, in fact, it did not happen when insurers offered discounts to carrier-switchers between 1996 and 2002.
"Between '96 and 2002, we did not see these surcharges," McHale said. "We saw prices drop in the state of California."
In a 2002 report, the insurance commissioner concluded that the discounts did lead to surcharges against some customers. If one group paid less for insurance, another group had to pay more because they were sharing losses, and the losses did not change.
And, the report warned, the surcharges could drive up the number of uninsured motorists – ultimately costing insured drivers more money.
The reason, according to the report, is that the surcharges would tend to hit hardest those who "can least afford to pay for insurance or who already have high premiums caused by other rating factors. This discourages them from buying insurance, which may add to the number of uninsured motorists and ultimately drives up the cost of the uninsured motorist coverage for every insured."
Insurance Commissioner Dave Jones has not taken a position on the initiative. Department officials said that if the measure passes, insurers would have to justify changes to their rates.
Prop. 33 supporters have won over some opponents of Prop. 17 by making it easier to qualify for the discount despite a lapse in coverage. For example, while Prop. 17 excused a lapse in coverage for those in the military who were deployed overseas, Prop. 33 excuses anyone who was active in the military.
It also allows for a lapse in coverage for as long as 18 months in the previous five years because of a loss of employment from a layoff or furlough. Prop. 17 allowed a 90-day lapse.
Mercury is the fifth-largest seller of auto insurance in California behind State Farm, the Southern and Northern California branches of the Automobile Club and Allstate. The other major insurers are all sitting out this campaign.
Explaining market leader State Farm's neutrality, spokesman Eddie Martinez said, "We believe in our own loyalty discount program, which provides our customers with an incentive to continuously maintain coverage."
The opposition is badly outgunned. So far the No on 33 campaign has raised about $95,000, mostly from consumer groups.
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