The Return of the Auto Insurance Discount Act

Mercury Insurance General Chairman has put $8.1 million in to a ballot initiative that would reduce rates for some and potentially raise rates for others. The Attorney General summarizes it as follows:

CHANGES LAW TO ALLOW AUTO INSURANCE COMPANIES TO SET PRICES BASED ON A DRIVER’S HISTORY OF INSURANCE COVERAGE.  INITIATIVE STATUTE. 

Changes current law to permit insurance companies to set prices based on whether the driver previously carried auto insurance with any insurance company.  Allows insurance companies to give proportional discounts to drivers with some prior insurance coverage.  Will allow insurance companies to increase cost of insurance to drivers who have not maintained continuous coverage.  Treats drivers with lapse as continuously covered if lapse is due to military service or loss of employment, or if lapse is less than 90 days.  Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government:  Probably no significant fiscal effect on state insurance premium tax revenues.

After the similar Prop 17 was defeated in 2010 by a wide margin of 51.9-41.8, Mike D’Arelli, Executive Director of Alliance of Insurance Agents & Broker, submitted a new initiative that took in to account criticisms. Torey Van Oot of the Sacramento Bee reports:

“After listening to the voters, our clients, and even our opposition, we realized that the new initiative needed to be written with greater clarity,” D’Arelli said in the statement.

Previous criticisms were noted by Ina Jaffe of NPR:

But opponents of Proposition 17 say the measure is really an excuse to raise rates on drivers who’ve let their insurance lapse.

Jamie Court, the head of Consumer Watch, says, “The people who are most likely to be hit are college students, military personnel stationed domestically on a base where they don’t need a car — anyone who decides the economy is just too tough and they’re just going to put their car in the garage. When they come back into the market, they’re going to be facing surcharges of up to 70 percent in many cases.”

The initiative now directly protects these groups from being hit with rate hikes:

(1) Continuous coverage shall be  deemed to exist i f  there is a lapse in coverage due to an insured’s active military service.
(2) Continuous coverage shall be  deemed to exist even i f  there is a lapse in coverage of  up to 18 months in the last 5 years due to loss of  employment resulting f rom a layoff  or  furlough.
(3) Continuous coverage shall be  deemed to exist even i f  there is a lapse of  coverage of  not  more 90 days in the previous 5 years for  any reason.
(4) Children  residing with a parent shall  be provided a discount for continuous coverage based  upon the parent’s eligibility for a continuous coverage discount.

Consumer Watchdog still opposes the initiative as Marc Lifsher of the LA Times explains:

Opponents, led by Consumer Watchdog, a Santa Monica activist group whose founder, Harvey Rosenfeld, wrote Proposition 103, contend that Joseph’s proposed initiative would unfairly rewrite the 1988 initiative by allowing insurers to discriminate against drivers who did not have coverage during the previous five years.

“The measure would repeal Proposition 103′s prohibition on insurance companies from considering a driver’s coverage history when a motorist applies for insurance,” Consumer Watchdog said in a statement Monday.

Those not covered under the new initiative’s umbrella whose coverage lapses are likely to face a rate hike. Chris Kissell of FoxBusiness elaborates:

Car insurance rates jump an average 5.7% for drivers who let their policies lapse, according to an analysis of Insurance.com data.

An examination of 184,000 car insurance policies sold through Insurance.com in 2009 and 2010 shows that drivers insuring one car paid an average 8.8% more in annual premiums than drivers who maintained continuous coverage.

The penalty was even greater when insuring multiple cars. Policies covering at least two cars cost 12% more for drivers with a coverage lapse than policies sold to drivers without a lapse.

Consider those unemployed for over 18 months will suffer a rate hike. And since the average duration of unemployment hit an all-time high of 40.4 weeks in July, it isn’t too radical to believe there exists a subset like this. Further, anyone wanting to cut auto insurance out of their budget for longer than three months will also receive a rate hike. And any child of a parent who face one of those lapses will also cause an increase in their own rates.

Although the initiative has been adjusted to redress previous complaints, it would harm the worst off in economic downturns, especially ones severe as the current one.