California Debates Again

By Author: Norris Rios
Total Articles: 568
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Last year, we saw a bad-tempered debate in California. Eventually, Proposition 17 was approved and placed on the ballot papers. It lost by just 2% which is a close result. Several features make this debate interesting. Let's start with the Proposition itself. It wanted to allow insurers to take your track record into account when setting the rates. So, for example, your current insurers may give you a persistence or loyalty discount for renewing year in, year out. This is only fair. If you renew, pay the installments on time and make no claim, you are a valuable customer who should be rewarded. The problem for the rest of the insurers is this persistence discount is not transferrable as such. When calculating what premium rate to offer, the new insurers are not allowed to look at the length of time you have been with your current insurer. This all sounds good and there was a $16 million advertising campaign in support. That's why the Proposition was almost carried. So what's wrong with this idea?

Well, just as an insurer can look at your track record and see you have been loyal, it can also see there have been gaps. So, ...
... for example, suppose you fall ill and are off the road for six months. When you start driving again, you are uncertain and out of practice. There's a higher risk of an accident. So many insurers increase the premium rate whenever there's a gap. Indeed, many use it as an excuse to raise rates when your teens go to college or a member of the military goes on overseas tour of duty. So the "no" campaign to Proposition 17 emphasized the risk that everyone with a gap could suddenly find their premium rates increase.

In a way, this focuses attention on the California Insurance Code. This forbids the Insurance Commissioner from considering whether a rate is fair based on the level of competition. When you want the Commissioner to step in to protect consumers, it's surprising he cannot consider whether the free market is working as it should. Anyway, the loss last year has not been taken as defeat and the original proposers are back again. This time, they have changed the wording to exclude the risk that a gap might justify a rate increase. This is solely concerned with making the persistency discount transferrable. Let's not ask whether competing insurers can offer welcome bonuses that match the persistency discounts. California is now to be asked to decide whether you should be allowed to pick up your discount and take it to other insurers. If you Californian voters reject it again, what you are apparently saying is that you don't want insurers to be able to compete against each other and match each other's discounts. In effect, you want to be locked into your current insurer by lower rates.

So, when you get the next renewal notice from your insurer and it does contain a persistency discount, get auto insurance quotes from the other insurers to see whether their rates compare. If the auto insurance quotes show all the other insurers are way more expensive, try telephoning them and asking why they don't want your business. If enough people make the point that premium rates are uncompetitive, insurers might do something about it.