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Editorial

Proposition 17 won't 'fix' anything

It claims to address a problem in California's auto insurance laws. But the problem doesn't exist.

June 05, 2010

Give proponents of Proposition 17 credit for chutzpah. Their TV commercials tell voters that there's "only one place to get the facts about Prop. 17: the official voters guide." But then they quote from the opinions the Yes on 17 campaign inserted into the guide's arguments and rebuttals section. No matter what the campaign commercials claim, the measure would not let drivers "take their continuous coverage discounts with them." Instead, it would create a new type of discount whose magnitude and effect are, at this point, unpredictable.

There is no "continuous coverage" discount today, at least not the way it's defined in Proposition 17. Instead, there is what amounts to a loyalty discount that most insurers offer to drivers who've been their customers for some time. The amount of the discount varies from company to company, as do the requirements to qualify. As per the requirements of Proposition 103, which voters approved in 1988, insurers have to justify the terms of the discount by showing a substantial correlation between customer loyalty and a lower risk of loss. They also have to offset the cost of the discount by imposing surcharges on new customers.

Proposition 17 would allow insurers to offer a new discount to drivers based on the length of time they'd been insured by any company, with corresponding surcharges on those who didn't qualify — in short, those who'd recently allowed their coverage to lapse. But nothing in the measure would compel insurers to match their rivals' loyalty discounts, so there's no guarantee that drivers could "take their discounts with them" when they switched insurers. Instead, the amount of the discount would be up to each insurer. If drivers wanted the same terms, they'd have to find an insurer whose discount matched the one offered by their current company.

Nor is it clear at this point whether the continuous coverage discounts would be as large as the loyalty discounts insurers offer today. That's because the universe of drivers eligible for the new discount wouldn't just be "responsible drivers," as the Yes on 17 mailers claim; it would also include people who've bounced from one insurer to another over the years as they've racked up collisions, claims and tickets. Meanwhile, the new discount would have to be offset through surcharges on any number of "responsible" people who stopped carrying insurance temporarily when they took a break from commuting — for example, servicemen and women based in the U.S. or people who relied on mass transit.

The most misleading thing about the commercials is the suggestion that the proposed discount would exist if not for a "flaw" in the law. As part of Proposition 103, voters banned insurers from charging drivers more if they'd been previously uninsured. The point was to shift premium calculations from a system based on potentially discriminatory factors, such as where drivers lived, to one based on how they performed behind the wheel. Proposition 17 is just the latest attempt by some companies, most notably Mercury Insurance, to unravel that policy. Voters shouldn't be confused by the Yes on 17 campaign's skewed version of reality.

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