Opponents Doubt Many Drivers Would Benefit

Proposition 17, a measure on the June 8 ballot funded primarily by
$13.8 million in contributions from Mercury General Insurance, promises
to create a new category of discounts for California motorists.

There is, according to a Department of Insurance analysis, a catch.

“A basic principle of insurance rate-making,” the analysis says, is
that “every discount requires a corresponding surcharge so that every
factor influencing a rate will balance evenly over an insurer’s book of
business.”

In other words, there is no free lunch for everyone — and the
advocacy group Consumer Watchdog challenges the notion that Proposition
17 would even result in a discounted lunch for anyone.

Supporters, including the Alliance of Insurance Agents and Brokers,
say most motorists would benefit from the change because it would
promote increased competition.

What Proposition 17 proposes is to add another factor upon which auto
insurance rates can be based under the basic rate-making formula
established by 1988’s voter-approved Proposition 103.

That initiative said rates can be based only on miles driven, the
number of years a driver has been licensed and the safety record of the
driver. Subsequently, state insurance regulators have added 16 other
optional factors, including what is called a “persistency” discount.
That means an insurance company can offer discounts as loyalty rewards
to long-time customers.

Proposition 17 would change the law to allow competitors to offer the
same kind of discount to drivers who switch insurance companies, as
long as they have continuously purchased auto insurance over the
previous five years without an interruption of more than 90 days.

Those who had a break in coverage for any period of time as a result
of failure to pay a premium would not be eligible.

Members of the military who have allowed their coverage to lapse
while serving overseas would not be penalized for having an
interruption. That exemption would not apply to those who dropped
coverage while stationed at a base inside the United States.

Proponents say the change could result in about 80 percent of
California drivers having a chance to claim a discount not now available
to them if they switch carriers.

“Passage of Proposition 17 means more competition in the auto
insurance marketplace, more choices for consumers and lower rates,” said
Michael D’Arelli, executive director of the agents’ and brokers’
group.

Doug Heller, spokesman for Consumer Watchdog, argues that there are
many legitimate reasons some people may have chosen to go without
insurance for a period of time — a prolonged recovery from surgery, a
loss of employment that resulted in having to sell a vehicle, a period
of time living on a college campus or in an area well-served by public
transit.

Consumer Watchdog and other critics also argue that Mercury Insurance
is simply not credible when it underwrites an initiative that promises
to lower rates.

Mercury’s $13.8 million in contributions represent more than 99
percent of the money the Proposition 17 campaign has raised. No other
insurance company in the state has financially supported or endorsed the
initiative.

Last month, a Department of Insurance review of rates charged by
Mercury resulted in allegations the company had overcharged consumers
and found 35 categories of alleged violations. They included charging
higher rates based on traffic violations that occurred well beyond the
three-year window in which violations can be lawfully considered,
penalizing customers for having been involved in accidents in which they
were not at fault and denying coverage to people who worked in certain
occupations, such as bartender or cocktail waitress.

“The sponsor of the initiative was just sued by the Department of
Insurance for failing to provide the discounts it was already supposed
to be giving customers,” Heller said. “They’re not in the business of
giving customers money back.”