Who would Prop. 17 car insurance initiative benefit?
by Carol J. Williams, Los Angeles Times
Backers say letting drivers carry discounts from carrier to carrier would aid most drivers. Foes say the measure would make rates unaffordable for many new drivers.
In a Yes on 17 radio promotion, actors portraying a couple pondering their car insurance bills grumble about "the flaw in the law" that would rob them of a discount if they changed insurance providers.
"I can take these coupons to any store in town but can only use the insurance continuous-coverage discount with one company? That’s not fair!" laments the actress playing a penny-pinching wife.
The proponents of Proposition 17 contend that passage would benefit more than 80% of California drivers because it would allow them to enjoy their continuous-coverage discounts ‘ as much as $250 a year for some drivers ‘ even if they switch carriers to take advantage of lower prices elsewhere.
FOR THE RECORD:
In a story in Friday’s Section A about Proposition 17, the car insurance initiative on the June ballot, two names were misspelled. Ben Gertner’s last name appeared as Gartner, and Mike D’Arelli’s last name as Darrell. In some editions, Richard Holober’s last name was misspelled as Holier.
But what insurers give to some clients comes at the expense of others, say consumer advocates opposed to the initiative bankrolled by Mercury Insurance Group. They say the measure on the June 8 ballot would drive up rates for those who gave up driving when they lost their jobs, got sick, served out of state in the military or just wanted to help the environment or save money by taking public transportation.
Opponents also contend that the initiative would make rates unaffordable for many new drivers and those with tarnished records, boosting the number of uninsured cars on the road and thereby raising safety risks and eventually premiums for everyone.
A seemingly simple proposal for making the continuous-coverage discount portable, Proposition 17 has become one of the more contentious issues before voters in next month’s primary election, largely because of the public relations baggage carried into the campaign by Mercury. In mid-April, state Insurance Commissioner and gubernatorial candidate Steve Poizner lambasted Mercury, the state’s fourth-largest auto insurer, for alleged violations of insurance law dating back a dozen years.
Auto insurance is highly regulated in California, with the Department of Insurance requiring providers to calculate individuals’ premiums primarily on the basis of their driving records, the number of miles driven each year and the number of years they’ve been licensed. An additional 16 optional factors include a driver’s age, marital status, residential location and whether he or she has been insured continuously by the same company, the latter known as a persistency or loyalty discount.
Portability of the loyalty discount was prohibited by Proposition 103, a 1988 citizen initiative that broadly changed the insurance industry and required rating factors to be directly related to risk. A bill passed by the Legislature in 2003, with vigorous lobbying by Mercury, briefly allowed insurers to offer the persistency discount to new customers before a state appeals court struck it down as an illegal revision of the will of the voters.
Consumer Watchdog founder Harvey Rosenfield, who authored Proposition 103 and is active in the Stop Prop 17 campaign, complains about Mercury’s expenditure of more than $7 million pushing the latest initiative in hopes of getting voter approval to raise premiums on new drivers and those reentering the insurance market. The Campaign for Consumer Rights behind Stop Prop 17 has, by contrast, spent about $200,000 in contributions.
Joel Fox, Small Business Action Committee president and former head of the Howard Jarvis Taxpayers Assn., says business groups like the portability option, anticipating that it would instill more competition among insurers. He likens the expected effect to what happened in the telecommunications market when cell phone subscribers were allowed to take their numbers with them when they switched providers, spurring carriers to offer unlimited minutes, free texting and other cost-saving inducements.
Some drivers would benefit, but extending the continuous-coverage discount to new customers would undermine Proposition 103’s link between rating factors and risk, said Richard Holober of the Consumer Federation of California.
"It is discriminatory against people who are down on their luck and serving their country," Holober said, adding that those who suspend their insurance for more than 90 days because they’re not driving ‘ such as students away at college or military personnel posted out of state ‘ would have to pay surcharges to reactivate their coverage. The Stop Prop 17 activists argue in the forthcoming state voters guide that it could cost returning drivers up to $1,000 more to get insurance if the ballot measure passes.
That worries voters like Ben Gartner, a Los Angeles teacher who sold his car and stopped his insurance back when gas was selling for $4 a gallon. Gartner biked or rode the bus to his job at Roosevelt High School for a year and a half before deciding he wanted the convenience of a car again. He fears he could be subject to a surcharge if Proposition 17 passes because it would allow any lapse in the last five years to be considered in setting premiums.
"I would feel it was very unfair if I had to pay more for insurance because I wasn’t driving. I didn’t have anything negative on my driving record. I did it to save money," he said.
The Yes on 17 lobby says opponents are using scare tactics.
"California is the most highly regulated insurance market in the country, with significant consumer protections, and our opponents know darn well the Department of Insurance would never approve rates with the surcharges they allege would occur," said Mike Darrell, executive director of the Sacramento-based Alliance of Insurance Agents and Brokers.
Most of the insurance industry has come out in favor of the measure, with varying degrees of intensity.
Sam Sorich, president of the Assn. of California Insurance Companies, said the group’s members were divided on whether to take a stand on Proposition 17. A majority of the board of directors ‘ he wouldn’t say how large ‘ voted to endorse it in the expectation that it would increase competition and benefit clients by lowering rates.
But the association doesn’t plan to contribute to the campaign or actively promote the measure’s passage, Sorich said.