If Proposition 17 passes, who would qualify for the new discount?
The Times' editorial board came out in opposition to Proposition 17, a measure on the June ballot that would enable a new "continuity" discount for drivers who switch insurance companies. It's a variation on the current loyalty discounts that insurers can offer to encourage drivers to renew their policies. The primary backer of Proposition 17, Mercury Insurance, argues that the loyalty discounts deter competition by discouraging people from changing insurers, and that adding a continuity discount would remedy that problem. The editorial counters that Proposition 17 is based on flawed logic and runs counter to the spirit of Proposition 103 -- a 1988 initiative that tied auto insurance rates more closely to a driver's record.
The editorial states that Proposition 17 would allow insurers "to offer lower premiums to drivers who maintained insurance for at least five years with any company." But a spokeswoman for the Mercury-funded group Californians for Fair Auto Insurance Rates, which is running the campaign in favor of the ballot measure, disputed that, saying insurers would be able to offer the continuity discount to drivers who'd maintained insurance for a significantly shorter period of time -- as short as six months, in fact.
The measure wouldn't affect loyalty discounts, which companies usually offer to drivers who've been customers for much less than five years. But Proposition 17's language on the continuity discount isn't clear as to when it would kick in. Here are the relevant portions of the text:
[A]n insurer may offer applicants or insureds an additional discount ... based on the length of time the applicant or insured has been continuously insured for bodily injury liability coverage ... with one or more insurers, affiliated or not.The insurer may consider the years of continuous coverage preceding the policy effective or renewal date. This discount is called a continuity discount. Children residing with a parent may be provided the same discount based on their parents’ eligibility for a continuity discount....
Continuity of coverage shall be deemed to exist even if there is a lapse of coverage due to an applicant’s or insured’s absence from the United States while in military service, or if an applicant’s or insured’s coverage has lapsed for up to 90 days in the last five years for any reason other than nonpayment of premium. This subdivision does not limit an insurer’s ability to offer additional grace periods for lapses.
Consumer Watchdog's Harvey Rosenfield, a leading opponent of Proposition 17 (not surprisingly, given that he wrote Proposition 103), said the only logical interpretation of the "deemed to exist" clause is that a driver must have five years of nearly uninterrupted coverage before becoming eligible for the continuity discount. But what about new drivers who've spent four years or less behind the wheel? You wouldn't say their coverage "lapsed" before they started driving, would you? On the other hand, if insurers provide a grace period for them, shouldn't they also offer the new discount to anyone who resumes driving after an extended period spent relying on mass transit? Wouldn't they pose a lower risk than a new driver? And why should inexperienced young drivers qualify for the discount simply because they're living with a parent who does?
Clearly, the eligibility issue isn't as clear-cut as the editorial suggested, but it doesn't seem as simple as proponents claim either. That's not necessarily a reason to vote against Proposition 17, but it does raise questions about who would benefit from it. It also clouds the issue of who stands to pay more if the proposition becomes law. Just as with all current discounts, insurers would have to offset the projected revenue loss from the continuity discount with a new surcharge on customers who don't qualify for it.
-- Jon Healey