Portable Persistency Now Prop. 33; Consumer Watchdog Attacks

An initiative to establish portable persistency discounts for automobile insurance this month was assigned a number by the California Secretary of State, and shortly afterward the newly named Proposition 33 came under attack by Santa Monica, Calif.-based Consumer Watchdog.

Prop. 33, the 2012 Automobile Insurance Discount Act, will reward Californians for maintaining car insurance, and allow Californians to shop their loyalty discount to competing insurance companies, proponents of the measure state.

Current California law allows a loyalty discount if a customer stays with the same insurance company. Insureds cannot take that discount with them to other auto insurers.

But consumer advocates say Prop. 33 is really about auto insurance rate hikes, and they consider portable persistency bad for uninsured motorists, even those who have been uninsured for only a short a period.

Consumer Watchdog called the proposition, which is in part funded by Mercury Insurance Chairman George Joseph, but not Mercury, as well as the American Agents Alliance, “a replay of Mercury’s unsuccessful 2010 initiative aimed at raising auto insurance premiums on millions of Californians.”

That initiative, Proposition 17, which was backed by Mercury Insurance, was narrowly defeated.

In fact, Consumer Watchdog was until recently hustling to get a competing initiative on the upcoming November ballot. The measure, which would also have required health insurance companies to get approval before raising their rates, narrowly missed qualifying for November’s ballot by last month’s deadline. Consumer Watchdog got 109 percent of the signatures necessary to qualify on a random sample verification rather than the required 110 percent.

However, elections officials’ projections of 109 percent validity make the initiative all but certain to appear on the next general election ballot after November, the consumer group stated.

That Consumer Watchdog initiative would have established prior approval for health insurance, and would also have prohibited “unfair pricing” not only for health, but for auto and home insurance based on prior coverage and credit history.

Needless to say, the group is vehemently opposed to Prop. 33.

According to a Consumer Watchdog statement: “Prop 33 aims to change over 20 years of insurance law by repealing a key anti-discrimination provision from the 1988 voter initiative Proposition 103.”

Joseph, who has come under regular attack by Consumer Watchdog for his support of portable persistency, told Insurance Journal he believes Prop. 33 is a pro-consumer initiative.

“There is no way that anybody who understands the insurance business can dispute the fact that this initiative improves the competitive environment in California,” Joseph said.

He said the argument that portable persistency discriminates against poor and first-time buyers is a faulty one, because “that’s what happens today.”

With the loyalty discounts currently given by auto insurance carriers, those who have been insured for a long time can get a break on rates, while those who are new to the company do not get the same rates, Joseph noted.

“The notion that if you give somebody a discount, you’re going to raise somebody’s rate, is happening today with the loyalty discount,” Joseph said. “Prop. 33 says if you’ve earned that discount, take it with you and shop.”

He added that the initiative, if it passes, would also give companies like Mercury an advantage.

“It puts us in a position to compete with other companies in a level playing field,” he said. “We’ll also be able to give the same discount.”

Consumer advocates opposing Prop 33 also include Consumers Union and Consumer Federation of California. Those opposing Prop. 33 say that while backers promise it will give people discounts, the measure is designed to get around an existing law that prevents unfair surcharges on good drivers.

“Prop 33 allows insurance companies to charge dramatically higher rates to customers with perfect driving records, just because they had not purchased auto insurance at some point during the past five years,” Consumer Watchdog said in a statement.

According to Consumer Watchdog, Prop. 33 would increase premiums for Californians who stopped driving for reasons including: graduating students entering the workforce; people who dropped their coverage while recuperating from a serious illness or injury that kept them off the road; Californians who previously used mass-transit; and the long-term unemployed.

“Californians who had chosen not to drive for a time and did not need insurance would be surcharged when a new job, move or some other circumstance requires them to buy insurance again,” Consumer Watchdog stated. “Prop 33’s unfair penalty would punish drivers with premium surcharges that could reach $1,000 a year or more just because they took a hiatus from driving their automobile.”

But according to backers, the initiative contains language protecting those who have lost their job or been furloughed by allowing them to continue receiving their loyalty discount.

The initiative will also protect members of the military while overseas, and allow parents who qualify for a loyalty discount to pass that discount to children who reside with them, backers say.

Joseph’s reasoning for passing Prop 33 is: “How do the insureds get hurt by 33? They don’t. And as for uninsured, most will pay a higher rate because they’re new, and that’s the way it is right now.”

Topics California Auto