Prop.17 bad for California

Written by Byron Williams

Tuesday, 18 May 2010

Regardless of the positive spin offered by its proponent’s commercials, Proposition 17, in many ways represents what’s wrong with the initiative process.

It is nothing more than the wolf of greed masquerading in the sheep’s clothing of consumer choice.

Backers of Prop.17 argue under current law, drivers who have maintained auto insurance with the same insurance company are eligible for a continuous coverage discount. However, a flaw in the law prohibits drivers from taking this continuous coverage discount with them if they switch insurers.

To correct this problem Prop.17 in theory would allow drivers to keep their continuous coverage discount even if they change insurers. As a result, there would be increased competition, which would translate into lower rates for California consumers.

If this were all the information I had to go on, I along with countless others would probably support Prop.17 on the June 8 ballot.   But all legislation, whether passed by the Legislature or by the electorate via a ballot measure, comes with unintended consequences.

This begs the question: What are the unintended consequences if Prop.17 passed? I say unintended consequences from the perspective of the consumer and not the supporters of Prop.17.

Prop.17 is portrayed as a simple change in the law that would allow insurers to offer a continuous coverage discount on policies to new customers who switch insurance companies. Consumers would be eligible for the discounts if their coverage had not lapsed for more than 90 days in the past five years. If the lapse occurred because of military service abroad, the discount would still be available.

But insurers would be allowed to increase the cost of insurance to drivers who dropped their car insurance for 91 days or more in the past half decade. Surcharges of several hundred dollars or more would be allowed even for motorists with good driving records.

Here’s partial list of who would eligible for the surcharge under Prop.17:

•   Soldiers serving on base in the United States could be penalized when returning to civilian life.
•   Someone loses their job and cannot afford insurance or even a car for time; they would be surcharged for getting back on their feet.

•   A family whose coverage was canceled after missing just one auto insurance payment would be penalized even if they tried to restart coverage immediately after they were canceled.

•   Students who are away at college and don’t need a car would be penalized when they graduate and need a car to enter the workforce along with anyone buying auto insurance for the first time.

If Prop 17 passes, there will be more uninsured drivers, which raises premiums for all drivers.
Perhaps you are asking yourself: “Who would come up with such a ridiculous measure?”   It is none other than the Mercury Insurance Co. that has magnanimously spent in excess of $10 million to qualify and support Prop.17.

Moreover, Prop.17 is essentially the return of SB 841, which passed the Legislature and signed by then Governor Gray Davis in 2003, but was overturned by the courts.

The court viewed SB 841 as an infringement on Prop.103, which was passed by California voters in 1988. Prop.103 regulated how insurance companies market and administer their policies.

Perhaps there is no correlation between the ratings agency Standard & Poor’s downgrading Mercury’s financial strength and their underwriting a ballot measure that could net them an estimated $32 million in fee increases.

I realize it is very cynical of me to not see Mercury’s support of Prop 17 as anything other than a desperate attempt to improve its bottom line in an extremely competitive insurance market.

Though California’s initiative process gives voters the right to enact legislation, it is rare when that process is spurred by grassroots efforts. There would not be a Prop.17 on the ballot if Mercury Insurance did not have $10 million to spend or if the courts did not throw out SB 841 after Mercury had successfully gotten it passed through the Legislature and signed by Davis.

Mercury has chosen the people of California as the last and best opportunity to support its skullduggery.
As Mercury claims feverishly through their advertising that Prop 17 is needed to make California a competitive market that actually lower rates, I keeping asking myself: “When was the last time an insurance company spent more than $10 million on a ballot measure because it was fighting on behalf of consumers?”