Calif. Ballot Measure Would Make Driver ‘Persistency’ Discount Portable

Insurer-backed Californians for Fair Auto Insurance Rates (CalFAIR) is promoting a voter initiative that would reward drivers who have had insurance for some time with a “persistency discount,” even if they change carriers.

The group, which has received initial funding from Mercury Insurance and its chairman, George Joseph, wants to get the measure on the June 2010 primary election ballot.

The “Continuous Coverage Auto Insurance Discount Act” would make consumers with a “persistency” discount from their present insurer eligible for a similar discount if they switch to new carrier. Backers contend this would lead to more choices and more competition for these drivers.

But critics say this would mean that other insureds and those who do not have an extended insurance history would end up paying more. They also worry it would encourage more drivers to go without coverage.

According to California law, insurance rates must be based on three factors: the insured’s driving record, number of miles driven annually, and number of years of driving experience. Following those three factors, insurers may also use 16 optional rating factors to determine automobile insurance rates. Included among those 16 optional rating factors is “persistency,” which allows an insurer to reward individuals for being long-term customers. Insurers are prohibited, however, from offering a persistency discount to new customers.

In addition, under current law, the fact that someone did not previously have automobile insurance may not be used in determining automobile rates and premiums, according to the Department of Insurance.

The CalFAIR measure would abolish the state’s current prohibition against using the lack of prior automobile insurance as a criterion in pricing and allow insurers to offer a loyalty discount to new customers who have a history with another carrier.

The advocacy group Consumer Watchdog has blasted Mercury Insurance for the proposal that it says would hurt many drivers.

“[This measure] would legalize surcharges of hundreds of dollars for automobile insurance, penalize good drivers for accidents that are not their fault, and lead to more uninsured motorists,” said Harvey Rosenfield, founder of Consumer Watchdog.

Rosenfield says people who stop driving for more than three months or were previously uninsured would be forced to pay more when they restart their insurance.

“This measure hurts middle- and working-class Californians because it allows insurance companies to increase auto insurance rates, raising costs for struggling families during an economic crisis,” said Rosenfield. “If people opt not to drive for a while and instead take mass transit or carpool, they would be charged a penalty once they start driving again. That’s unfair.”

The group also predicts that the measure will also cause the number of uninsured motorists to rise, leading to higher premiums across the board. With more uninsured motorists on the road, the cost of auto insurance for everyone will go up because insurers will charge higher premiums to cover the expense of an accident where the driver at fault does not have insurance.

Furthermore, the group anticipates the proposal would encourage insurers to drop customers who file claims.

“This deceptively worded attempt to fool the voters is just another example of why Mercury cannot be trusted,” Rosenfield said.

But Kathy Fairbanks of CalFAIR said the consumer group’s interpretation of the proposal is incorrect, and that the proposal will benefit consumers by increasing competition.

The proposal addresses just one of the 16 optional rating factors insurers can use when setting rates, and extends a discount that they already give, she said. “All the proposal says is that if customers want to leave their current insurer and go to another company, they can also take their length of insurance to another carrier that can offer the same discount and lower price, reducing auto premiums for most people in California,” she said.

Fairbanks believes Mercury Insurance supports the proposal because it would allow it to better compete for customers. “[I]f consumers have more choices and there’s more competition among insurers in the marketplace, that’s a great benefit for consumers,” she said.

The state Legislative Analyst Office reviewed the proposal and predicted that while the measure could result in a change in insurance premiums, the impact would probably be minor. “This is because overall premiums are largely determined by other factors — such as driver safety, the number of miles driven, and years of driving experience — which are largely unaffected by the measure. The measure would have no significant fiscal impact on state and local governments,” wrote Mac Taylor, legislative analyst.