By Jim Conran
Special to Calbuzz
Signature gathering is underway for a 2010 initiative which will fix an inconsistency in auto insurance law, expand an already-existing discount and lower auto insurance rates for millions of California consumers who abide by California law and maintain auto insurance coverage.
Under current law insurers can give existing customers a discount for having continuous auto insurance coverage (sometimes called the loyalty discount), but if that customer wants to switch insurance companies the new company is prohibited from providing that same customer that same discount.
The Continuous Coverage Auto Insurance Discount Act ensures all drivers who maintain their automobile insurance coverage are eligible for this discount even if they change their insurance company. Who benefits? The more than 80% of consumers who maintain auto insurance.
This includes working families, single parents, elderly and young drivers. Changing the law to allow insurance companies to offer the same discounts to new and existing customers will make the auto insurance market more competitive.
If auto insurers want to attract new customers and keep their existing ones, they will have to offer lower prices, better plans and better service. Increased competition and lower rates is a good thing, especially in these tough economic times.
This measure does not in any way change the primary factors that currently determine a person’s auto insurance rates under California law. Insurance companies still will be required to base your auto insurance rates primarily on your driving safety record, miles driven annually and driving experience. And other discounts, like the good driver or student discount, will remain in place.
Disappointingly, there are a few who are trying to defeat this pro-consumer measure. Recognizing the uphill battle before them, they have attempted to cloud the issue by implying this very simple measure will cause massive upheaval in the market and have an adverse affect on some consumers. Specifically, they claim that because insurance is a “zero sum game” any discount provided to one class of customers has to be offset by another group of customers.
They are wrong. This initiative does not create a new discount, it only makes portable a discount already being provided to the vast majority of California drivers who continually maintain auto insurance coverage.
Currently, 82% of drivers are insured. Thus, the overall amount of insurance premium in the system does not change since it’s already factored into rates for eligible and non-eligible drivers. The only thing that would change is that customers would be free to shop around and shift from one insurance company to another without losing their continuous coverage discount.
Under current law, consumers are punished for switching auto insurance companies. Under this proposed initiative they would be free to keep their continuous coverage discount and seek out additional savings.
Much has also been made of the fact that the initiative is being spearheaded by Mercury Insurance. Clearly Mercury wants to offer this discount to lure new customers and increase its business in California.
But the only way it – or any insurer — can gain market share is by offering better rates or plans than the competition. And that, of course, means consumers will have more options and lower prices. That’s a very clear benefit and one that deserves voter support.
Jim Conran, the former Director of the California Department of Consumer Affairs, is President of Consumer First and co-chair of Californians for Fair Auto Insurance Rates