Proposition 33’s ‘Price Setting’ Controversy

Judge's gavel

It’s not a surprise that a proposition on the November ballot in California is getting a lot of attention from people on both sides of the issue. However, with a lawsuit filed by supporters of Proposition 33 in late July over the official wording of the measure, the issue has become not merely a disagreement, but a litigious one at that.

Breakdown of Proposition 33

Proposition 33 is an initiative aimed at maintaining discount auto insurance for people that switch car insurance companies but still keep continuous coverage. And it happens to be backed by the chairman of Mercury General Corp.

Basically, as it stands now, for each year you are with your insurance company and are continuously insured, you get a loyalty discount, but if you switch companies, you don’t. So, say you are with Allstate and you switch to Nationwide; even if you have been continuously insured since you were 16, you will not get a discount for continuous coverage. This proposition would change that.

However, opponents of Proposition 33 point out that it would do something that would radically change the industry: insurance companies could surcharge people who didn’t have insurance in the past. This has lead to claims of unfairness, with opponents saying the bill would disproportionately affect low-income and new drivers. And this new ability for the insurance companies to determine prices based on previous coverage would alter the current law on guidelines for calculating rates.

D’Arelli v. Bowen and Price Setting

The lawsuit filed by a supporter of Proposition 33 claims that the title and summary that will be read by voters contains “inaccurate language that is highly likely to prejudice voters against the measure.” Included in the suit are the state attorney general and the California secretary of state.

The language of the title and summary says that Proposition 33 would change the way insurance prices are calculated by changing the law to allow car insurers to “set prices.”

The phrase “set prices,” the lawsuit argues, has negative connotations and hence would prejudice readers against the proposition.

That may leave some Californians wondering about the methods by which auto insurers are already allowed to determine the prices they pay for car coverage.

Current Pricing Practices

As it stands now, Proposition 103, passed in 1988, sets uniform guidelines for how California auto insurance companies are allowed to calculate rates. Using three sets of mandatory criteria—a driver’s record, the number of years he or she has driven, and the number of miles driven per year—insurance companies determine a person’s premium. In addition, there are 16 optional rating factors. According to a legislative analysis of California’s law, they are the following:

  1. Vehicle type
  2. Type of use (pleasure, business, commuting, etc.)
  3. Percent use of the vehicle by the rated driver
  4. Number of vehicles
  5. Academic standing
  6. Training courses completed
  7. Vehicle add-ons
  8. Vehicle performance capabilities
  9. Driver’s gender
  10. Marital status
  11. Policy persistency (within the same company)
  12. Smoker status
  13. Number of policies
  14. Claim frequency in surrounding area
  15. Claim sizes in surrounding area
  16. Secondary driver characteristics

But Proposition 33 would add another factor to the 24-year-old set of guidelines governing how rates are calculated, and this is creating controversy.

With the deadline for printing the voter guides—where the language would be found—set for Aug. 13, the Sacramento Superior Court doesn’t have much time to rule.

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