Monday, 29 October 2012

California Proposition 33, Automobile Insurance Persistency Discounts

In California, a ballot proposition is a proposed law that is submitted to the electorate for approval in a direct vote. Propositions have been part of the California political landscape for quite some time.

A ballot proposition may be proposed by the State Legislature or by a petition signed by members of the public under the initiative system.

One of the best known was Proposition 13 in 1978 which decreased property taxes and imposed a 2/3 requirement for budget votes and tax increases. Some Propositions have been passed but found unconstitutional such as Proposition 22 in 2000 which banned same-sex marriages but was struck down by the California Supreme Court.

 On November 6th, there will be eleven propositions on the ballot including Proposition 33 which if passed would change current law to permit insurance companies to set prices based on whether the driver previously carried auto insurance with any insurance company. Insurance companies would be allowed to give proportional discounts to drivers with some prior insurance coverage and increase the cost of insurance to drivers who have not maintained continuous coverage.  It would also treat drivers with a lapse as continuously covered if the lapse is due to military service or loss of employment, or if the lapse is less than 90 days.

Proposition 33 is similar to Proposition 17, which was on the June 8, 2010 ballot. Proposition 17 was narrowly defeated. Unlike Proposition 17, Proposition 33 exempts soldiers and those who have been unemployed for 18 months or less from paying more after a lapse.

There is a provision in Ontario regulations dealing with lapses in insurance coverage.   Ontario Regulation 664 prohibits an insurer from considering a lapse in insurance coverage for purposes of risk classification unless:
  • the insured person was convicted of driving without insurance during the lapse in coverage;
  • the lapse resulted from the termination of an automobile insurance policy because the insured person failed to pay the premiums due under the policy;
  • the lapse resulted from the suspension of the insured person's driver's license as a result of a driving conviction;
  • the lapse resulted from the insured person's attempt to misrepresent their driving record due to earlier accidents or convictions, in order to avoid paying higher insurance premiums.
As with all California Propositions, there are organizations lined up in favour and opposed to Proposition 33.  Supporting the measure is the Republican Party, veteran groups and a number Cahmbers of Commerce.  Opposed are the Democratic Party, unions and consumer groups.  The insurance industry is split on the initiative because it may cause some consumers to shop around more.

California law requires all drivers to buy automobile insurance. Approximately 85% of California drivers follow the law and buy insurance. If you follow the law and maintain continuous automobile insurance coverage, you are currently eligible for a discount, but only if you stay with the same insurance company. Current law punishes you for seeking better insurance or trying to get a better deal by taking away your discount for being continuously insured.

Those opposed are concerned that insurers will use the new rules to raise rates on drivers.  There is concerns that people who stop driving, perhaps for economic reasons, and need to begin driving again and will therefore pay higher rates.  The Ontario regulation only allows insurers raise rates due to a lapse of coverage where the lapse was the result of a driving conviction, licence suspension of policy cancellation.

UPDATE:   Proposition 33 was defeated on Tuesday for the second time in three years.  It was the second attempt by billionaire insurance executive George Joseph to let insurers lower rates for drivers who maintain insurance coverage and raise them for drivers who dropped coverage in the past.  Consumer advocates raised about $200,000 to defeat the measure but were dramatically outspent by Joseph, who donated $16 million to the yes campaign.

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