On September 25, 2012, the Assembly Insurance Committee and Senate Insurance Committee held a two-hour joint informational hearing on Proposition 33 which will be on the November 2012 California ballot. The hearing was for information purposes only and therefore the committee took no action or vote on the proposition.
Proposition 33 (click HERE for text) would allow insurers to use continuous automobile insurance coverage with any admitted insurer or insurers as a rating factor for private passenger automobile insurance. We last blogged on Proposition 33 in July and August 2012.
Under an existing California Department of Insurance regulation, an insurer may use continuous coverage as a rating factor when an individual is currently insured for automobile insurance with the insurer. The existing regulation prohibits an insurer from basing the continuous coverage rating factor on coverage provided by another non-affiliated insurer. Proposition 33 would override this existing prohibition.
Proposition 33 would add a new section to the Insurance Code which would expressly allow an insurer to use continuous coverage as an optional rating factor for private passenger automobile insurance policies. The section defines “continuous coverage” to mean:
"uninterrupted automobile insurance coverage with any admitted insurer or insurers, including coverage provided pursuant to the California Assigned Risk Plan or the California Low-Cost Automobile Insurance Program.”
The proposition states that continuous coverage is deemed to exist if a lapse of coverage is due to an insured’s military service, if there is a lapse of up to 18 months due to loss of employment, or if there is a lapse of coverage for not more than 90 days for any reason.
Proposition 33 would grant children residing with a parent a continuous coverage discount based on the parent’s eligibility for a continuous coverage discount. Finally, Proposition 33 would grant a proportional discount to a driver who is unable to demonstrate continuous coverage; the discount would reflect the number of years in the preceding five years for which the driver was insured.
Testimony at the Hearing
Testimony at the committees’ joint hearing was presented by three panels. That testimony was followed by comments from the public.
Legislative Analyst’s Office
Representatives of the Legislative Analyst’s Office stated that Proposition 33 would not have a significant effect on state revenue. According to the Office, the reduction in insurance premium taxes paid by drivers who get the proposition’s discount would be offset by the increased insurance premium taxes paid by drivers who do not qualify for the discount.
Proponents of Proposition 33
Representatives of the American Agents Alliance argued that Proposition 33 would reward drivers who obey the law that requires drivers to obtain insurance coverage. The proposition will allow more drivers to qualify for discounts.
Proposition 17, which also related to continuous coverage, was rejected by California voters in 2010. The Alliance representatives pointed out that Proposition 33 is entirely new. USAA and the Greenlining Institute opposed Proposition 17, but both organizations are supporting Proposition 33.
The Alliance representatives testified that Proposition 33 is better for consumers than the current law. Under current law, a driver loses his or her discount whenever there is a lapse of coverage. In contrast, Proposition 33 would preserve the continuous coverage discount when the lapse results from military service, unemployment, or for any reason when the lapse is not more than 90 days.
Opponents of Proposition 33 contend that in states that allow continuous coverage to be used as a rating factor, drivers who do not maintain continuous coverage pay significantly higher insurance premiums. The Alliance representatives countered that California’s highly regulated system for automobile insurance is unique and thus comparisons with other states are invalid and misleading.
A representative of Pinnacle Actuaries testified that the major benefit of Proposition 33 is that it will encourage competition. Under the proposition, more insurance companies will be able to offer discounts. This will benefit consumers who shop for insurance.
The Pinnacle representative disagreed with the proposition’s opponents who argue that Proposition 33 will result in huge surcharges for many drivers. The actuary pointed to the experience during 1995-2002 when continuous coverage was authorized as a rating factor in California. During that time, there were no big surcharges.
Opponents of Proposition 33
Consumer Watchdog’s fundamental objection to Proposition 33 is that the proposition conflicts with the statutory provision enacted by Proposition 103, which states,
the absence of prior insurance coverage in and of itself, shall not be a criterion for determining eligibility for a Good Driver Discount policy, or generally for automobile rates, premiums, or insurability.”
Consumer Watchdog contends that proof of prior insurance is required for Proposition 33’s continuous coverage and drivers who lack prior insurance will be charged higher rates. According to Consumer Watchdog, this use of prior insurance to determine rates is barred by Proposition 103.
The Consumer Watchdog representative argued that there is no statistical evidence that the maintenance of continuous insurance coverage is related to a lower risk of loss. The representative testified that the rating factor authorized by the current Department of Insurance regulation is really a loyalty discount which is based on lower administrative costs rather than on a lower risk of loss.
A representative of Public Advocates described the organization as an association of civil rights groups. The representative stated that the Proposition 103 provision highlighted by Consumer Watchdog was aimed at insurer redlining practices. According to Public Advocates, Proposition 103 would encourage insurers to redline low income communities and communities of color.
A representative of the Consumer Federation of California characterized the supporters’ argument that Proposition 33 rewards those who obey the law as inaccurate because many law-abiding consumers will not qualify for the proposition’s discount. He pointed to drivers who let their insurance coverage lapse because of extended disabilities or use of mass transit.
The Federation representative argued that Proposition 33 would allow insurers to use continuous coverage as a rating factor without having to establish that continuous coverage has a substantial relationship to the risk of loss.
A representative of four veteran groups expressed support for Proposition 33.
A representative of USAA explained that USAA opposed Proposition 17 but the company supports Proposition 33 because military personnel would be better off under the proposition than they are today.
A representative of the Greenling Institute said that the organization opposed Proposition 17 but it supports Proposition 33. The Greenling Institute was established to oppose redlining practices. The Institute disagrees with those who contend that Proposition 33 would hurt low income communities and communities of color. The Institute representative accused the opponents of Proposition 33 of engaging in selective use of statistics to reach misleading conclusions.