November 6, 2012
Against Drivers Without Continuous Coverage
SAN FRANCISCO, CA – For the second time in two years, California voters defeated a ballot measure sponsored by Mercury Insurance that would have allowed auto insurers to discriminate against drivers who did not maintain continuous coverage. A similar Mercury Insurance-sponsored ballot measure was defeated by California voters in 2010.
“Once again, California voters saw through this misguided proposal that would have allowed auto insurers to penalize millions of drivers in low-income, minority and inner-city communities,” said Mark Savage, senior attorney for Consumers Union, the policy and advocacy arm of Consumer Reports. “Today’s vote ensures that auto insurance rates in California will continue to be based primarily on an individual’s driving record.”
Consumers Union opposed the ballot measure because it would have undermined California’s Proposition 103, which prohibited insurers from using the absence of prior automobile insurance as a criterion for automobile rates, premiums, or insurability–a critical consumer protection.
Mercury Insurance Company’s CEO, George Joseph, bankrolled Proposition 33, which would have authorized insurers to give a “discount” to drivers already insured for their continuous coverage. Because insurance ratemaking requires the insurer to recover the same overall revenue for the same overall losses, a discount for some must be paid by a surcharge on the rest — those not previously insured, such as someone newly re-employed and now able to purchase auto insurance — to cover the same overall premiums.
Moreover, insurers must charge and allocate a much larger surcharge on the smaller number of previously uninsured motorists in order to offset a smaller discount for the much larger number of insured motorists. For example, a 10 percent continuity discount for previously insured motorists could yield a 40 percent surcharge on previously uninsured motorists.
By making auto insurance more expensive for drivers who have not maintained continuous coverage, Proposition 33 would have likely resulted in more drivers being priced out of the market and going without coverage. As a result, drivers with insurance would have likely seen their uninsured motorist premium go up.
Contact: Michael McCauley, mmccauley@consumer.org, 415-431-6747, ext 126