Posts Tagged ‘Auto insurance’

Pro: It’s Good for Consumers

Sunday, November 15th, 2009

By Jim ConraConran Head Shotn
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

Con: It’s An Industry Scam

Sunday, November 15th, 2009

doughellerBy Doug Heller
Special to Calbuzz

The policy issue behind the hubbub surrounding the secret recordings made by Jerry Brown’s ex-spokesman stretches back to 1984, when Gov. George Deukmejian signed California’s proof of auto insurance law, making it easier to cite someone for driving uninsured.

In 1985, civil rights and community groups sued to challenge the law, arguing that insidious industry practices prevented many citizens from complying. The California Supreme Court acknowledged the severity of the problem, but ruled that the groups needed to seek a legislative, rather than judicial, fix.

Justice Allen Broussard, in a concurring opinion, focused on one of the worst practices: the use of prior auto insurance coverage as a basis for denying or surcharging a customer.

A 2005 court ruling on the subject summed up Broussard’s view: “… Justice Broussard noted two practices were widespread in the insurance industry prior to Proposition 103’s passage: prohibitively high insurance rates for the previously uninsured driver, and the exclusion of uninsured drivers from the insurance market altogether simply because they were not previously insured…Such practices arbitrarily penalized uninsured motorists, leaving many unable to comply with California’s mandatory insurance laws.”

When Californians enacted insurance reform with Proposition 103 in 1988, voters prohibited auto insurers from considering prior insurance coverage. Now, two decades later, Mercury Insurance, California’s third largest auto insurer, wants to reestablish the costly and unfair practice.

Its proposed initiative would override Proposition 103’s prohibition, allowing companies to base premiums on whether or not a driver has been continuously insured. Mercury’s public relations team claims it will give discounts to people who’ve had continuous auto insurance; they refuse to acknowledge that it also will allow rate increases on struggling families with a lapse in coverage.

That is exactly what Mercury was doing illegally until the Department of Insurance and a class action lawsuit stopped them several years ago. It is exactly what they wanted in 2003 — when they sponsored legislation virtually identical to the current initiative; the courts tossed that law because it allowed insurers to raise rates on people simply for having a lapse in coverage.

It is also exactly how the company prices policies in states without California’s protections. It’s worth noting that you don’t have to have been driving uninsured to face the no-prior-coverage penalty proposed in Mercury’s initiative. If you lost your job and sold the car, had surgery and stopped driving, or used public transportation exclusively for a time, you would pay hundreds of dollars more than someone who’d been “continuously covered” if you ever need insurance again.

Back in August, the Attorney General correctly described an earlier version of Mercury’s initiative, saying it would allow insurers to raise or lower premiums based on any lapse in coverage. A Brown campaign donor, Mercury disliked that, because initiatives allowing higher rates don’t do well with voters.

The company withdrew that proposal and resubmitted it with cosmetic changes. Lawyers in Brown’s office told me they were under intense pressure to change the Title and Summary, and Brown’s office accommodated: The new title and summary only mentions “discounts,” not the premium increases the proposal would allow for millions of Californians.

It’s bad enough getting a Title and Summary wrong; glossing over the ugly part of Mercury’s initiative is more egregious for the AG, because he wrote it fairly the first time.

Brown’s lawyers claim the two versions are different: the first, they say, explicitly struck the Prop. 103 provision prohibiting prior coverage discrimination, while the new version didn’t. They don’t mention that the new version clearly says it would take effect “notwithstanding” the no-discrimination provision of 103. Nor do they note that the Mercury-sponsored, invalidated 2003 law allowing surcharges didn’t strike the provision either.

Comments by AG lawyers in the taped interview with a reporter show they defaulted to legal obfuscation when asked about the issue: “I don’t want to say anything…that will end up in a lawsuit,” and “we don’t have a crystal ball” about how a court would rule on the key question.

The quotes come from the secretly recorded interview Brown’s ex-spokesman used to try to kill a story about the AG’s flip-flop. The rest is recorded, er, on the record.

Doug Heller is executive director of Campaign for Consumer Rights, the campaign affiliate of Consumer Watchdog.