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No on Proposition 17

The ballot measure wouldn't promote competition in auto insurance and should be defeated.

April 28, 2010

In approving Proposition 103 in 1988, California voters demanded a dramatic change in the way auto insurers calculated premiums — a change that emphasized personal responsibility over group identity. The proposition required insurers to look first at the applicant's driving record, miles driven and years of experience, then at other state-approved factors with a "substantial relationship" to the risk that applicant posed. The one thing it specifically barred insurers from considering was whether the applicant had previously been insured.


For the record: This editorial implies that Proposition 17 would change the state Constitution; in fact, it would alter the state insurance code. The editorial also cites a similar measure passed by the Legislature in 2003 as SB 831; it was SB 841.

Now, one company — Mercury Insurance — is leading efforts to remove that prohibition on the grounds that it reduces competition. The ballot initiative it funded, Proposition 17, would let insurers offer discounts to new customers who'd maintained uninterrupted insurance coverage for at least five years with other companies. Customers who had no previous coverage or who'd let their policies lapse for more than 90 days would face higher premiums. This would be a step back toward a rating system that charges people based on the category they fit into, not how well they drive, and its supporters haven't offered a persuasive reason for such a departure from the spirit of Proposition 103.

Most drivers have a loyalty discount from their current insurers, which knocks their premiums down a few percentage points. This rating factor is based on actuarial studies that show a correlation between loyalty and safe driving — the longer someone stays with one insurer, the less likely he or she is to submit claims. The discount encourages drivers not to switch insurers, even though they may find lower premiums elsewhere. Proposition 17 would redefine the loyalty discount as a "continuous coverage" rating factor, allowing insurers to offer lower premiums to drivers who maintained insurance for at least five years with any company.

Proponents argue that Proposition 17 would encourage experienced drivers to shop around for insurance, promoting competition in the market. But the rationale that justifies loyalty discounts doesn't apply to the version touted in the initiative. People who stick with the same policy year after year have better safety records as a group in part because insurers induce risky drivers to take their business elsewhere — for example, by jacking up their rates after they've had a costly accident or accumulated multiple traffic tickets. Those are the drivers who are most likely today to jump from company to company, rendering them ineligible for a loyalty discount. They may be continuously covered by different insurers, but that doesn't reveal anything about their driving.

Another problem with Proposition 17 that proponents can't explain away is that insurers will have to offset the expected revenue loss from the new discount by raising rates on the people who don't qualify for it. By proponents' estimates, 80% of California drivers qualify for the loyalty discount, which means that the 20% who don't qualify pay a surcharge. But more than 80% of drivers have been continuously covered by various insurers, so more people will be eligible for the discount — and the fewer people who remain will have to pay for it.

Proposition 17 is at least the fourth attempt by Mercury to undermine Proposition 103 — previous efforts include SB 831, a Mercury-sponsored bill the Legislature approved in 2003 but the Court of Appeal threw out two years later — and it's spending millions of dollars on the campaign. It's unseemly to alter the state Constitution at the bidding of a single company, particularly one that so recently was accused by state regulators of overcharging its customers and discriminating against drivers in certain lines of work. But Mercury is merely the biggest investor in the Yes on 17 side; the initiative is also backed by the Assn. of California Insurance Companies, the trade group whose members write almost 60% of the auto policies in California. To them, Proposition 17 is another tool to help group drivers into risk pools based on something other than their actual driving records. Californians rejected that in 1988, and they should do so again now. We urge a no vote on Proposition 17.

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