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Californians for Fair Auto Insurance Rates has gained enough support to place a voter initiative on the June 8, 2010 ballot, aimed at rewarding drivers who have had insurance for some time to be eligible for a “persistency discount,” even if they change carriers, the Secretary of State certified.
The “Continuous Coverage Auto Insurance Discount Act,” for which support was funded in part by Mercury Chairman George Joseph and other company executives, is facing criticism by a consumer watchdog group that says the measure penalizes people for not having prior insurance coverage.
The proposal “would legalize surcharges of hundreds of dollars for automobile insurance, penalize good drivers for accidents that are not their fault, and lead to more uninsured motorists,” the group said.
According to California law, insurance rates must be based on three factors: the insured’s driving record, number of miles driven annually, and number of years of driving experience. Following those three factors, insurers may also use 16 optional rating factors to determine automobile insurance rates. Included among those 16 optional rating factors is “persistency,” which allows an insurer to reward individuals for being long-term customers of theirs. Insurers are prohibited, however, from offering a persistency discount to new customers. In addition, under current law, the fact that someone did not previously have automobile insurance may not be used as a criterion for determining automobile rates and premiums, according to the Department of Insurance.
CalFAIR aims to allow consumers to take their “persistency” discount with them to other carriers when shopping for insurance.
“Like a good driver discount, this ballot measure would reward more than 80 percent of responsible California drivers who maintain insurance coverage as required by law by making them eligible for a discount, even if they switch insurance companies,” said Kathy Fairbanks of CalFAIR. “That means drivers will be eligible to take this discount with them when shopping for rates, giving drivers more options when it comes to their insurance coverage. The result will be increased competition, which will lower rates and result in reduced premiums.”
Campaign for Consumer Rights, the campaign affiliate of Consumer Watchdog, however, counters that people who do not have prior insurance are surcharged under portable persistency. “Many of these people are those that can least afford to pay for insurance, or who already have high premiums caused by other rating factors. This discourages them from buying insurance, which may add to the number of uninsured motorists and ultimately drives up the cost of the uninsured motorist coverage for every insured,” the group said in a statement.
Fairbanks believes Mercury Insurance supports the proposal because it would allow the company to better compete against other insurers for customers. “For proponents of the measure, insurers will be able to compete and gain more consumers,” she said, “and if consumers have more choices and there’s more competition among insurers in the marketplace, that’s a great benefit for consumers.”
In its analysis, the state Legislative Analyst Office predicted the measure could result in a change in the total amount of insurance premiums, but said the impact is “probably minor”. “This is because overall premiums are largely determined by other factors — such as driver safety, the number of miles driven, and years of driving experience — which are largely unaffected by the measure. The measure would have no significant fiscal impact on state and local governments,” wrote Mac Taylor, legislative analyst.