Changes Law To Allow Auto Insurance Companies To Set Prices Based On A Driver’s History Of Insurance Coverage
At first glance, Proposition 33 seems like a straightforward measure: it would change the current California law that allows auto insurance companies to offer discounted rates as a "loyalty reward"—but only to their own customers. Should Proposition 33 pass, Insurance Company A could also offer these "persistency discounts" to customers who had similar records of continuous enrollment at Insurance Company B. So what's the harm if, in attempting to attract new customers, Company A offers current customers of Company B the same discount that Company A currently offers its own customers? The answer lies in focusing upon the plight of drivers who are now, or have previously been, uninsured.
Based upon the history of similar measures, there is good reason to believe that Proposition 33 would penalize drivers with gaps in their coverage history—and those who are economically vulnerable are the most likely to have such gaps. Proposition 33 is functionally identical to Proposition 17, which appeared on the June 2010 primary election ballot and which we opposed at that time. Like 2010’s Proposition 17, Proposition 33 would change current law to permit insurance companies to set automobile insurance prices based on whether a driver previously carried auto insurance with any insurance company. Though it would allow insurance companies to give proportional discounts to drivers with some prior insurance coverage, it would allow those same companies to increase the cost of insurance to drivers who have not maintained continuous coverage. Proposition 33 would give a break to lapsed drivers by treating them as continuously covered if the lapse is due to: (a) military service; (b) loss of employment for up to 18 months within the last five years, but only if the loss is due to layoff or furlough; or (c) for any reason, but for no more than 90 days within the previous five years. Children residing with a parent would be entitled to a continuous coverage discount based upon the parent’s eligibility for same. However, among those excluded from these exceptions are low-wage workers who leave their employment to become full-time students so that they can acquire the skills needed for better-paying jobs, but who are unable to afford auto insurance premiums while enrolled in school. Likewise penalized would be those just entering the workforce who may not yet earn enough money to afford the kind of auto insurance premiums charged in urban areas. In sum, Proposition 33’s so-called “persistency discount” would effectively lock poor people out of the insurance market.
One of Proposition 33’s principal proponents is Mercury General Insurance, whose chair has already personally donated over $8 million to the campaign to pass it. In other states where Mercury operates under the kind of rules it would like to see instituted in California, the effect is often to impose whopping surcharges on drivers with less than perfect records of maintaining auto insurance coverage. Thus begins a costly spiral of higher and higher rates due to longer and longer periods without coverage, thereby effectively making it impossible for the poor to ever acquire auto insurance. With "preexisting conditions" only recently outlawed as a basis to deny health care coverage, it would be anomalous indeed to legalize an eerily similar practice for auto insurance companies. Since this initiative could have significant and harmful effects on California consumers, and particularly low-income Californians, Bend the Arc strongly recommends a NO vote on Proposition 33.