Proposition 33: The Distortions Begin Early

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Proposition 33, an initiative to let auto insurers offer discounts to competitors' customers, isn't quite the same as Proposition 17, a similar proposal that voters rejected in 2010. But the campaign in favor of the measure seems to be following the same truth-distorting playbook.

The Yes on Proposition 33 campaign has bought airtime on 19 radio stations in five cities for what appears to be its first commercial, which is due to begin broadcasting Wednesday. The 30-second spot declares: "Proposition 33 protects our veterans and military families, and allows them to keep their discount on car insurance, saving them money."

It would do nothing of the kind.

Under current law, insurers are allowed to offer discounts to existing customers who renew their policies. Those are loyalty discounts. Like Proposition 17, Proposition 33 would create a new type of discount, one that insurers could offer to new customers who'd been previously insured by a different company.

So, right off the bat, we know that Proposition 33 won't allow anyone to "keep their discount." The markdowns it creates are available only to people who leave one company for another, putting themselves in a different rate structure and, most likely, paying a different price.

What Proposition 33 does is offer military personnel a better deal than Proposition 17 did. Under Proposition 17, military personnel could qualify for the discount even if their coverage lapsed, but only if they were stationed out of the country. Under Proposition 33, the exemption was extended to personnel whose coverage lapsed while they were on active duty anywhere. All the same, the measure would have no effect on the loyalty discounts those drivers were now receiving.

The pro-Proposition 17 campaign similarly confused the existing loyalty discounts with the "continuous coverage" ones it was proposing. There's a fundamental difference. Loyalty discounts are based on the premise that renewing a customer saves an insurer money on marketing and administrative costs. That makes intuitive sense. "Continuous coverage" discounts are based on the premise that people's insurance-buying history indicates something about the risks they pose that their gender, driving experience and accident record don't reveal. That doesn't make intuitive sense. If I have insurance continuously for five years because I drove to work throughout that period, I'm not necessarily less of a risk than an equally experienced driver who dropped his insurance for a year because he sold his car and took the bus.

Insurance rates and regulation are complex, so the campaign over Proposition 33 is sure to involve some oversimplification. Sadly, the Yes on Proposition 33 campaign also seems intent on confusing the public too.

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