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No on 33: It's just not fair

SAN DIEGO UNION-TRIBUNE

Click here to read the original editorial from the San Diego Union-Tribune.

Proposition 33 sounds good, billed as an easy way to increase competition between auto insurers and to produce lower rates for California’s drivers. But after lengthy discussions with proponents, opponents and independent insurance experts, we have come to believe it is a ballot measure built on a misperception and driven by an assumption that hasn’t been proved.

The measure would allow drivers to move their “persistency discount” for years of continuous coverage from one insurer to another and allow insurers to use the lack of continuous coverage as a factor in calculating rates. Unlike a previous version defeated by voters in 2010, this initiative has provisions to protect members of the military and the unemployed from higher rates if their coverage isn’t continuous.

But insurance experts say the real reason the “persistency discount” is given to drivers is not because their continuous coverage shows they are safer drivers. Instead, it reflects the fact that a company doesn’t have to spend money on marketing and advertising to attract drivers it has already signed up.

So who would want a change in state law that encouraged drivers, safe or not, to change policies? A vehicle insurance company with a cheaper initial rate structure. Who is providing virtually all the funding for the pro-Proposition 33 campaign? The founder of just such a company, Mercury Insurance’s George Joseph.

So why isn’t the rest of the insurance industry up in arms over the measure? Partly because the biggest insurers believe they have superior coverage and better reputations than Mercury, which has had several run-ins with regulators, and they aren’t worried about an exodus if the initiative wins. But also partly because industry opposition could actually make passage more likely.

Which brings us to the assumption in Proposition 33 that hasn’t been proven. If the measure passed and lack of continuous coverage became a mandatory factor in setting drivers’ rates, those who didn’t have continuous coverage and weren’t in exempted groups like active-duty military personnel would see their rates jump sharply. Mercury’s own website reflects this for policies it offers in states where lack of continuous coverage can be a consideration in setting rates.

We are philosophically opposed to the heavy regulatory hand reflected in Proposition 103, the 1988 state initiative that micromanages the auto insurance industry. We are not big fans of Consumer Watchdog, the group behind Proposition 103 and the leader of the fight against Proposition 33, because of its refusal to be transparent about its own operations and its habit of seeking to protect trial lawyers and to create new opportunities for them to act like remoras.

But Proposition 103 isn’t going away, and one of its key provisions needs to be maintained: There must be a demonstrated correlation with risk when using certain factors in setting rates. Higher premiums for a leadfoot with a history of speeding makes sense because it correlates with risky driving. We have yet to see conclusive evidence that a lack of continuous insurance coverage correlates with being a riskier driver. This makes Proposition 33 fundamentally unfair and impossible to support.