California Voters' Guide 2012: Proposition 33

Among a daunting package of ballot questions, here is the free minds and free markets perspective on proposition 33.

Proposition 33:  Allowing Auto Insurance Discounts Based on Driver's History of Insurance Coverage

Proposition 33 allows insurance companies to offer customers switching from other companies a type of good customer discount if they can prove they kept their insurance coverage for the last five years. Current law only allows them to give those discounts to their own customers.

Fiscal Impact

The Legislative Analyst's Office found no fiscal effects.

Arguments for Proposition 33

Supporters of Prop. 33 argue that it will let people shop for a better insurance deal.  They say it will allow people who are responsible and keep their insurance current for five years or more to get a discount from whichever company gives them the best deal, not just their current insurance company. Current law does not allow those discounts except from people's current insurance company. So supporters argue that Prop. 33 makes insurance companies compete, helps lower rates, and thus will mean more drivers get insurance.

They also argue that military groups support Prop. 33 because active military members will get to keep their discounts even if they stop insurance while they are deployed overseas.  They say similar provisions apply to the unemployed, who can let insurance lapse for 18 months because of layoff or furlough and still qualify for a discount.

Prop. 33 will encourage more people to get insurance, reducing the problem of uninsured drivers because it makes it easier to earn the continuous coverage discount, supporters argue. And they say it increases competition among companies because people can more easily switch (they don't lose their discount anymore) and that drives down insurance rates even more.

Supporters of Proposition 33

Website: http://www.yesprop33.com/

  • American Legion
  • Peace Officers Research Association of California
  • Jim Brulte, Former Republican Senate Minority Leader
  • Veterans of Foreign Wars (VFW) of California
  • CDF Firefighters Local 2881
  • California Republican Party
  • American GI Forum
  • California Association of Highway Patrolmen
  • Former Lieutenant Governor of California, Cruz Bustamante
  • California Hispanic Chambers of Commerce
  • Senator Juan Vargas, Former Chair of the Assembly Insurance Committee
  • Don Perata, Democratic leader and former California Senate President pro Tempore
  • The Greenlining Institute
  • Willie Brown, Former Democratic Speaker of the Assembly

Largest Donors to Yes Campaign as of October 1, 2012

George Joseph, Chairman, Mercury General Insurance: $8,422,126

Arguments Against Proposition 33

Opponents of Prop. 33 argue that it will allow insurance companies to raise rates for people who don't qualify for a continuous coverage discount at the same time as they give discounts to those who do, and that the increases are likely to be more than the discounts.  So it is just a way for insurance companies to make more money, they say.

Moreover, they say that current law does not allow insurance companies to charge people more because they previously did not have insurance coverage, and that allowing them to do so will make insurance less affordable for some and lead to more uninsured drivers.  They argue that it is unfair to charge more for insurance for people who decided to go without insurance for a while due to college, residence in a transit-rich city, unemployment, sickness or another reason.

Opponents of Proposition 33

Website: http://stopthesurcharge.consumerwatchdogcampaign.org/

  • Consumer Watchdog
  • California Democratic Party
  • Campaign for Consumer Rights
  • Consumer Federation of California
  • Consumer's Union
  • Consumer Federation of California

Largest Donors to No Campaign as of October 1, 2012

  • Consumer Watchdog: $40,616
  • Campaign for Consumer Rights: $30,000
  • Consumer Federation of California: $17,430
  • Chic Wolk: $5,000

Discussion of Proposition 33

California has one of the most tightly regulated insurance markets in the nation, and while auto insurance rates in California are slightly below the national average, rates have been climbing in recent years and the state is tied for 8th place for the state with the most uninsured drivers.

It is odd that the state forbids insurance companies from offering a discount if you are good customer and are responsible about keeping your insurance up.  It also seems quite logical that someone who is responsible about maintaining insurance and maintains a safe record with years of coverage should pay less than someone who does not—they are clearly demonstrating that they are less of a risk.

The opponents’ arguments completely ignore the fact that insurance is a competitive market, that companies can't just raise rates for people who don't keep continuous coverage because they have to compete for customers.  Offering discounts to customers who show they are lower risk and more likely to remain insured is an easy way to compete. Raising rates on people you are less sure about is tricky if it drives them to a competitor.  It is like if an appliance store offered a discount to customers who buy the extended warranty—maybe a good way to win some customers. But if they added a surcharge to the sticker price for customers who don't by the extended warranty, customers would go to another store.

Prop. 33 would increase competition among California insurance companies and allow people more opportunity to shop for better insurance deals.


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