Cheap auto insurance and Prop. 17 in California

Somewhere in the dim and distant past of learning English, an idiom surfaced referring to gift horses and their mouths. The translation is that, when someone gives you a gift, it's ungracious of you to publicly examine it too carefully. Yet, in the case of Prop. 17 which appears on the ballot in California, we should perhaps open the horse's mouth and examine it's teeth. It may prove to be an old Trojan horse and a gift we should reject.

Why be suspicious? Because the force behind Prop. 17 is not a consumer advocate, it's the Mercury General Corp. Yes, friends, we're supposed to believe that an insurance company wants voters in California to pressure lawmakers so that the insurance industry can give millions of dollars in discounts to policyholders. There's another of those idioms that comes to mind at this point. It's something about pigs suddenly sprouting wings and taking to the air in the joy of flight. Indeed, so committed is Mercury to Pro. 17 that it's paying millions of dollars in TV ads to persuade everyone to vote for it. Bless its little cotton socks. It's trying so hard to do right by Californians.

So just what does Prop. 17 say? Well, it's one of these deceptively simple suggestions. As the law stands, Prop. 103 says insurers can only offer continuous or persistent (sometimes called "loyalty") discounts to their own customers. The idea is straightforward. Instead of trying to poach customers from each other by offering discounts, insurers should try to attract new business by offering low rates. This has the advantage that insurers are competing equally on premium rates for both established and new drivers. If passed, Prop. 17 would allow insurers to match the current persistent discount based on the number of claims-free years. This would lure established customers from competing companies. At first sight, this looks like a good deal for any experienced driver who wants to switch insurers. But the price is paid by the inexperienced new drivers. If persistent discounts are to be paid for, the premium rates for new drivers must increase. Indeed, the premium rates could be increased for anyone who does not have a continuous history of insurance coverage.

California is often a litmus test for the insurance industry. It voted to outlaw the use of zip codes as a key factor in setting premium rates. The idea of portable continuous or persistent discounts is going to be equally controversial. In one sense, it should not matter. If companies were genuinely competing with each other to offer cheap auto insurance, every driver would celebrate and pick the best deal. But the reality is that auto insurance companies soft pedal the competition. There's more than enough business to go around. All the companies want to make a good profit without trying too hard. Yes, Prop. 17 will work to the advantage of the established driver with a continuous record of no claims, but everyone else could face significant premium increases. Hopefully, the voters will see this gift horse for what it is and leave it in the field. As an aside, the British market has always allowed drivers to move between insurers with their accumulated discounts, but the British market has real competition and, generally, premium rates are lower "over there".