by Sheila Kuehl
October 19, 2012
This is the fifth in a series of essays analyzing the Propositions appearing on California's November ballot. This essay analyzes Prop 33, which would alter the factors considered in setting auto insurance rates in contravention of the provisions of Prop 103, adopted by the voters in 1988.
The voters rejected an initiative just like Prop 33 only two years ago, in part, because of their concern that one insurance company, Mercury Insurance, was footing the bill for the entire "yes" side. Prop 33 would allow auto insurance companies to offer discounts to other companies' insureds if they have maintained "continuous coverage" with their current company. Let's call it the "cherry-picking, unraveling of the old Prop 103" proposition.
The first essay in this series explained Proposition 30. The second presented the competing tax measure, Prop 38, and indicated possible outcomes, should both Prop 30 and 38 pass. The third analyzed the many proposals contained in Prop 31. The fourth discussed the anti-union agenda of Prop 32. The next essays will present and analyze each of the remaining propositions.
Automobile Insurance Laws in California
In 1988, California voters approved Prop 103, which overhauled both rules and oversight of automobile insurance in California for the benefit of consumers. Prop 103, which is current law, requires the Insurance Commissioner to review and approve, or deny, rate changes for certain kinds of insurance, including auto insurance (but not health insurance). Prop 103 also required auto insurance rates and premiums to reflect three rating factors, giving the first the greatest weight: the insured's driving safety record, the number of miles driven each year and the number of years the insured has been driving. In addition, the Insurance Commissioner may apply any of 16 additional rating factors to determine reasonable and fair rates and premiums.
One of these non-required factors, now being applied in California by our Insurance Commissioner, allows your current insurance company to offer you a loyalty discount for maintaining your coverage with them. It does not allow other companies to offer you the same discount, and cherry-pick the most consistent insureds, which would offset the basic risk-spreading benefit of insurance.
On the other side of the same coin, current law does not allow your insurance company to charge you more than the approved rate just because you have not maintained continuous coverage with them, but must go only by the approved factors.
Finally, discounts given to any subset of their insureds by a company are required to be offset by rate hikes on those not getting the discount, in order to keep an appropriate pot from which to pay claims.
Prop 33 Is Deja Vu All Over Again
If you think you've seen this initiative before, it's because you have, and not too long ago. The same backer, Mercury Insurance Company Chairman, George Joseph, put in most of the money supporting a similar proposition only two years ago. The voters defeated it, recognizing there must be something in this for Mercury Insurance for them to foot almost the entire bill. The same is true this year with Prop 33, for which Mr. Joseph has provided 99.5% of 16.7 million reported as spent on the initiative (it's probably much more now).
The ad campaign features a young woman testifying that she is doing the right thing by carrying insurance and thinks companies should be able to compete for customers.
Unfortunately, the ad doesn't reveal that the young woman is actually working for the Prop 33 campaign. It also doesn't point out that a discount rate for those having continuous coverage and switching over means a hike in rates for current insureds who have had a lapse in coverage for any reason with three exceptions. The exceptions are military service, loss of job (if the lapse was no more than 18 months....good luck in this job market) or a lapse for any other reason, lasting no more than 90 days in the last five years. About 20% of California's insureds would presumably see their rates go up because they had a lapse in insurance that didn't fit into any of these categories.
Next: Prop 34, Ending the Death Penalty in California