By June 8 this year, California residents will be able to vote for an auto insurance persistency discount.
Consumer watchdog group Californians for Fair Auto Insurance Rates (CalFAIR) was able to gather enough clout to place a voter initiative on the June ballot. The Secretary of State certified that the initiative intends to reward drivers who possess car insurance for a certain period of time to be eligible for a persistency discount even if they switched to another insurer.
The Continuous Coverage Auto Insurance Discount Act gained the financial support of Mercury Chairman George Joseph as well as other company executives. Because of this, CalFAIR criticized the Act since it, in effect, penalizes drivers who do not posses prior insurance coverage.
The Group said that the act would have legalized surcharges amounting to hundreds of dollars intended for auto insurance. Moreover, good drivers will be penalized for accidents which they are not culpable to, and, which may lead to even more motorists to be uninsured.
Current state law in California has three facts in which insurance rates are based on: (1) the driving record of the policyholder, (2) the distance (miles) driven per year; and (3) the number of years of experience as a driver.
Other that these factors, insurance companies are allowed to set their auto insurance rates based on 16 optional rating factors. ‘Persistency’ is one factor included, which permits insurers to reward their long-term clients. However, insurers are not permitted to provide persistency discounts to new policyholders. Furthermore, the Department of Insurance explained that the ‘fact that someone did not previously have auto insurance’ cannot be used as part of the criteria to set premiums and rates.
The consumer watchdog group wants customers who shift to other carriers to take their ‘persistency discount’ with them. If the initiative is favorably voted upon, the absence of prior car insurance as a factor to set premiums and rates will be eliminated.
CalFAIR representative Kathy Fairbanks said that the ballot measure would be able to reward as much as 80% of responsible car owners in California. Drivers would have more options when shopping for new rates which may result in increased market competition. Fairbanks added that this may also result in reduced premiums and lower rates.
Campaign for Consumer Rights, CalFAIR affiliate, explained that there may still be a problem under the ‘portable persistency’ measure when companies levy surcharges to clients who shift to their insurance programs, which may actually discourage policyholders.
The State’s Legislative Analyst Office predicts that the measure may only provide a ‘minor’ impact even if there would be an increase in the total amount of auto insurance.