Special interests go directly to voters – Chronicle recommends: No on Proposition 17
EDITORIAL, THE SAN FRANCISCO CHRONICLE
The Mercury Insurance Group is promoting a ballot measure that would allow it to offer discounts to the vast majority of California drivers.
What’s wrong with this picture?
Plenty, on closer inspection.
Proposition 17 might provide a slight price break to Californians when they switch insurers. Mercury has projected that it could cut premiums to new customers by about 5 percent. But there is no free lunch. One customer’s discount is another’s surcharge. Critics warn that a discount offered to the 80 percent of Californians who carry insurance would result in substantially higher rates for drivers who were not previously insured – even if it was because they did not own a car, had a brief lapse in coverage or were attending college or serving in the military and were thus away from home for an extended time. The measure offers protection for troops stationed overseas – but not for those on stateside stints.
This measure would represent the first major revision of Proposition 103, a 1988 measure designed to make auto insurance more affordable and readily available to Californians.
Under Prop. 103, premiums must be approved by the Department of Insurance and companies must show a connection between price and risk. There are three primary factors:
– Driving record, including accidents and moving violations.
– Miles driven.
– Years of driving experience.
Insurers also are allowed to submit evidence of enhanced or reduced risk on a limited menu of other variables in their rate-setting requests. For example, some companies provide discounts for vehicles with air bags or anti-lock brakes, or factor a driver’s age or marital status in the premium. Companies are allowed to provide discounts to their long-term customers – and many do. But they are not allowed to discriminate against new customers who are not insured.
There are sound policy reasons for this prohibition. Affordability is one of the main reasons drivers lack insurance. Surcharges on the previously uninsured would only increase the barrier for those who want coverage but cannot afford it.
Also, insurers have shown a quantifiable link between price and risk to justify the discounts to their long-term customers. Drivers who stay with the same company tend to have had fewer claims.
Mercury representatives claim that, if Prop. 17 passes, they could show a similar correlation to justify discounts to customers they lure from other companies. But the key word is claim. We asked for evidence to support their argument that the continually insured – with the same driving record, same annual miles, same years of experience – posed a lower risk. They could not.
Auto insurance is highly competitive, and rates vary widely. A married couple with a clean driving record might pay anywhere between $2,000 and nearly $6,000 for standard coverage, under a sampling we entered on the Department of Insurance Web site www.insurance.ca.gov. It’s apparent that many Californians are staying with their insurance companies because they are not shopping around for price – or perhaps because they are satisfied with their carrier. Incidentally, Mercury scored low marks in the 2009 J.D. Power survey of customer satisfaction.
The Prop. 17 formula is likely to produce, at best, a marginal benefit to Californians shopping for a new company – and a daunting additional cost for those who are desperate to get coverage.
Two California companies are spending millions of dollars on June initiatives that each believes will give it a competitive advantage. This is not what Gov. Hiram Johnson and other reformers had in mind a century ago when they established direct democracy as a tool for the citizenry to bypass a Legislature that had become captive to special interests, notably the Southern Pacific Railroad. Both propositions should be rejected.