Auto Insurance Discount Initiative May be Gaining Bipartisan Endorsement

By Don Jergler | March 16, 2012

The backers of an automobile insurance persistency initiative are making steps to gain bi-partisan support for their proposition, which is slated for California’s Nov. 6 ballot and a possible showdown with what would be a competing initiative.

Just days after the California Republican Party endorsed the 2012 Automobile Insurance Discount Act, Don Perata, former Senate president pro tempore, also offered his endorsement. And this week California State Sen. Juan Vargas (D-San Diego), former Chair of the Assembly Insurance Committee, announced his endorsement.

“I think that this is a bipartisan issue,” said Vargas, who argued the initiative, backed by the American Agents Alliance and personally by Mercury Insurance Co. Chairman George Joseph, is consumer friendly.

Perata, a Democrat who was a runner up in the race to be Oakland’s mayor in 2010, no longer serves in Legislature, but the initiative’s backers view his endorsement and Vargas’ as a momentum builder.

“It’s nice to see a leading Democrat and the Republican Party both support this initiative,” campaign spokesman Terry McHale said.

Peratta, who now runs a political consultancy firm, views the initiative as consumer friendly.

“The discount is already allowed in California but is controlled by the insurance companies,” Perata said in a statement. “This initiative does what most states have done successfully and allows the consumer to control the discount. This is not a party issue. This is a fairness question, and as a legislator and policymaker, I always supported the portability of this discount. It just makes sense.”

So far the initiative has drawn fire from a consumer group that is trying to get its own initiative on the ballot, the Insurance Rate Public Justification and Accountability Act.

Both the initiatives would expand Proposition 103. A major provision of Prop 103 dealt with personal automobile insurance, requiring insurance rates to be determined using the following factors in decreasing order of importance: insured’s driving safety record, number of miles driven annually by the insured, and number of years of driving experience the insured has had.

The proposition also prevented rates from being determined based on a person’s history of insurance.

The initiative is being backed by Santa Monica, Calif.-based Consumer Watchdog, which is still collecting signatures to qualify it. Consumer Watchdog’s initiative would require health insurance companies to file for rate increases like auto insurers do now.

However, it’s not just about health insurance. Among the proposed act’s 900 words is language that prohibits “unfair pricing” not only for health, but for auto and home insurance based on prior coverage and credit history.

Consumer Watchdog spokesman Doug Heller wasn’t surprised to see these particular two Democrats back the initiative.

“This is like dog bites man,” he said. “There’s no surprises here.”

Heller said both Perata and Vargas have acted favorably toward the insurance industry in the past. Perata in 2003 introduced a bill for portable persistency, Senate Bill 841, and it was passed and signed by Gov. Gray Davis, but the California Court of Appeal overturned it.

And Vargas is a former insurance executive who in the past has received campaign money from the insurance industry, Heller said.

“He was an insurance executive himself,” Heller said. “Juan Vargas has made a career of siding with the insurance industry.”

And it’s insurance executives who are behind the initiative, Heller added.

“This is George Joseph, the chairman of Mercury Insurance’s initiative,” Heller said, stating that Joseph has spent $8 million toward this initiative and previous attempts, such as Proposition 17, which was on the 2012 ballot and defeated, to bring portable persistency to California.

Despite some of the Democratic support, Heller believes the dividing lines will be the same. “Those in favor of consumers will be opposed to it,” he said. “We think the initiative will be defeated when voters see that an insurance executive is spending tens of millions of dollars on the ballot.”

He added that “voters don’t care where politicians stand. I just think that when voters go through the initiative process, they are the policymakers, they are the decision makers when they go to the ballot box. I’m not sure the fact that a state senator who used to work for an insurance company is of interest to voters.”

Vargas, who said his campaign funding is traditionally spread out from a variety of sources, not just insurance companies, said Consumer Watchdog’s allegations that he’s beholding to insurance companies are mere mudslinging.

“They always like to throw dirt because they can’t win on the facts,” he said.

Vargas believes the 2012 Automobile Insurance Discount Act will appeal to voters who comprehend that it would enable auto insurance consumers to take their insurance history and shop it around to other insurers for better rates.

“If you explained what it was to 100 people … I’ll bet you 100 out of 100 people will say ‘Oh, I’d like to take it with me,” Vargas said.

The initiative is backed by the AAA and Joseph, but not by Mercury, which backed Prop. 17 in 2010.

The Prop. 17 campaign was opposed by most newspaper editorials and by Consumer Watchdog. The insurance industry outspent the proposition opponents and the initiative was narrowly defeated, 52 percent to 48 percent.

Campaign spokesman McHale noted that under the present system, consumers lose their discount if they have any lapse in coverage with the company controlling the discount.

Under this initiative, McHale said, consumers keep their discount if it lapses for up to 90 days for any reason, they can shop around their discount, keep the discount if they are active in the military, keep the discount for up to 18 months if they have lost a job or been furloughed, and if they are living at home with their parents or return home after college.

Under the initiative, motorists without insurance will be eligible for a percentage of the discount within one year and get an increasing percentage every year for five years.

“It increases competition among insurance companies, and it will lower price for the consumers,” McHale said.

“What’s the difference between this and the status quo?” he asked. “The discount is already there, all we’re saying is give it to the consumer and not to the insurance company.”

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