California insurance carriers spent the last part of December jumping through hoops to comply with the California Depart

Portable persistency discounts helped to encourage competitively priced products that promote comparison shopping.

Amid the confusion surrounding the elimination of portable persistency discounts in California, we may have lost sight of the real issue: Portable persistency discounts are good for consumers.

Persistency discounts are sometimes referred to as loyalty discounts by carriers. They are reduced rates provided as an incentive for consecutive years of coverage with the same carrier. Portable persistency discounts provide consumers with reduced rates for maintaining automobile insurance coverage for consecutive years with another carrier. The carriers that offered portable persistency discounts were encouraging consumers to shop for more competitive auto insurance rates.

In 2003, the Legislature passed a bill that would have alowed portable persistency discounts. The law was challenged and overturned in September by the California Court of Appeal in Los Angeles. What makes matters challenging for the 20 or so California carriers that had been offering portable persistency discounts is that the DOI is not allowing carriers to simply submit a rule change. Instead, carriers must submit a class plan filing for the rate change.

The Association of California Insurance Companies (ACIC) had requested that the DOI postpone the Dec. 5, 2005, deadline for a month, to Jan. 5, 2006. That delay would have provided insurers with the necessary time to accurately amend their renewal premium offers and ward off any confusion caused by incorrect premium due notices. The request – which seemed to be a reasonable and pro-consumer request – was denied.

I’m confused why the DOI could not accommodate such a reasonable request. Because of the rush to implement the changes, it’s likely that many policyholders who previously received that discount may have received incorrect renewal offers. Many carriers, due to being given a short time frame to comply, may not have had the opportunity to program their systems to remove this discount on renewing policies. Unfortunately, some carriers may have already mailed their renewal notices to policyholders prior to receiving the DOI bulletin. And, any carrier that will have to re-issue renewal notices will likely be flooded with questions.

Needless to say, agents and brokers may have to do a lot of explaining to their policyholders whose renewal premiums may need adjusting.

In addition, the rash of rating changes certainly has the comparative rating vendors jumping through hoops. It typically takes rating vendors approximately 30 days to implement rate changes. Some carriers recommended that their agents and brokers may run rates on the individual carrier systems for a while until the vendors provide assurance that they have adequately programmed all the rate changes.

Insurance professionals throughout the state have been shaking their heads in disbelief ever since the Court of Appeal handed down its decision. Portable persistency discounts are good for responsible drivers. The discounts reward drivers who have complied with the state’s mandatory financial responsibility law. They also help automobile insurance carriers to offer more competitively priced products.

Why should uninsured motorists be afforded the same price as law-abiding drivers? Why would auto insurance carriers in a private market be forced to pull the plug on a benefit that rewards consumers? Furthermore, why would the DOI – after approving those discounts for years and years – all of a sudden change their mind?

What will happen to private passenger automobile insurance carrier rates without the portable persistency discount?

I do not have a crystal ball, but I’m confident the real loser will be the consumer. The discount helped to encourage competitively priced products that promote comparison shopping. Sounds like a win-win for the consumer. So, how can the DOI, or the Court of Appeal, or any consumer group explain how the decision to eliminate portable persistency discounts benefits consumers?

There is a simple fact that the so-called consumer advocates seem to overlook: No matter how many low-cost automobile insurance programs you enact no matter how much you try to force insurers to offer more discounts no matter how much you roll back rates the fact still remains that there will be consumers in California who will not buy automobile insurance.

To some, it is a matter of pure economics. When they must make a choice between putting food on the table or buying auto insurance, they will buy food. To some, it is a cultural issue. Some drivers may not see automobile insurance as a priority. Some drivers simply try to avoid the law. Whatever the reasons, it is a fact that there will always be a portion of the population who will not purchase auto insurance.

It has been reported that there may be an initiative drive in 2006 to allow carriers to, once again, offer portable persistency discounts. What would be better is a free market system where insurers can compete fairly without unnecessary regulatory intervention.

Ken Nigohosian is executive director of the Alliance of Insurance Agents and Brokers based in La Verne, Calif. Phone: (909) 392-0836. E-mail: ken@
agentsalliance.com.

Topics California Carriers Agencies