Prop. 33 Restarts Auto Insurance Debate

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An initiative on the November ballot that would allow auto insurers to base their prices in part on a driver's coverage history is pitting an executive at one of the state's largest insurance companies against a consumer advocacy group for the second time in as many years.

Proposition 33 would enable insurance companies to offer discounts to drivers who have maintained consistent coverage and to charge higher rates for those who haven't. Under Proposition 103, which voters approved in 1988, insurers cannot factor in a motorist's past coverage when setting rates.

In 2010, voters narrowly defeated Proposition 17, a measure similar to Prop. 33. But supporters of Prop. 33 say it would allow more drivers to get insurance at a lower price than the measure voters rejected two years ago.

Current law allows insurers to offer loyalty discounts to drivers who maintain coverage with that company, but the law prohibits other companies from using such discounts to attract customers. If Prop. 33 passes, insurers could provide discounts to customers based on their continuous coverage, even if it was with another company.

Prop. 33 differs from Prop. 17 by expanding exemptions that allow certain people to qualify for the continuous-coverage discount even if their insurance has lapsed.

Lapse exceptions

Drivers who drop their insurance because they serve in the military or those who had no insurance for 18 months or less in the past five years because they were laid off or furloughed are still eligible, as is any motorist whose coverage lapsed for 90 days or less in the past five years. Young drivers living with a parent can qualify depending on their parent's eligibility.

Insurers could also offer proportional discounts to drivers with some history of coverage if Prop. 33 passes.

Supporters of the measure – which has received 99 percent of its funding from George Joseph, chairman of insurer Mercury General Corp. – say it will increase competition among insurers, leading to lower rates and more insured drivers.

But opponents, led by Consumer Watchdog in Santa Monica, say the new discounts will have to be offset by higher prices for drivers who, for reasons including long stints of unemployment, have let their insurance lapse. They argue that the proposition would penalize people who can least afford higher rates with a surcharge so great that it could result in more uninsured drivers.

"This isn't about giving consumers a break," said Carmen Balber, Consumer Watchdog's director in Washington, D.C. "It all comes back to who's really behind this. When is the last time an insurance company spent millions of dollars to save you money?"

Exec spends millions

The money is not coming directly from Mercury – Joseph has pitched in more than $8 million of his own money to support Prop. 33, according to an analysis of campaign donations by MapLight, a nonpartisan organization in Berkeley that studies money and politics. In 2010, Mercury contributed about $16 million to support Prop. 17.

Opponents of the measure have raised about $89,000, $40,000 of which came from the Consumer Watchdog Campaign, according to MapLight.

Rachel Hooper, a consultant for the Yes on Prop. 33 campaign, said the measure improves current law by effectively allowing drivers to take their discount, built over time, with them when they change insurers. The measure is about competition, not profits, she added.

Hooper said opponents are leveling the same criticism they used against Prop. 17 in 2010 despite the changes made in the new initiative.

"It's unfortunate that the opposition wants to try to fight a campaign from two years ago," she said.

To overcome their lack of funding, opponents of Prop. 33 must highlight the fact that the bulk of the other side's funding is coming from one insurance executive, said Thad Kousser, a UC San Diego political scientist.

Supporters' cash advantage

Voters often align against measures that appear to benefit a specific industry or individual, viewing them as unfair uses of the initiative process.

But Prop. 33 supporters' cash advantage means they can spread their message more broadly. If they develop an argument that connects with voters and earn endorsements, they can sway voters despite being associated with the insurance industry, Kousser said, likening it to the tobacco industry funded defeat of Prop. 29 in June.

Proposition 33

What it would do: Allow insurance companies to set rates based partly on a driver's past insurance coverage, meaning they can offer discounts to motorists with continuous coverage and charge higher rates to those lacking such an insurance history.

Who's for it: American Agents Alliance, the Greenlining Institute, California Republican Party. George Joseph, the chairman of Mercury General Corporation, is responsible for 99 percent of the money raised – more than $8 million.

Who's against it: Consumer Watchdog, an advocacy group founded by Harvey Rosenfield, the author of Proposition 103, which voters approved in 1988. Other opponents include the Consumer Federation of California and the California Democratic Party. Opponents have raised about $89,000.

Drew Joseph is a San Francisco Chronicle staff writer. E-mail: [email protected]

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