By Catherine Zaw

If approved in November, Proposition 33 would allow auto insurers to offer discounts to new customers who have had continuous coverage for the past five years.

Sound familiar?

It should. The initiative is a reincarnation of Proposition 17, which was shot down by a narrow margin in June 2010. It now rises from the dead, equipped with some changes that proponents hope will sway voters. But consumer advocates say those changes merely cloak Proposition 33’s real ambitions—to make insurers more money from new fees and surcharges that would target the state’s most economically vulnerable drivers.

The new proposition would allow exemptions for military personnel, individuals who have been unemployed for up to 18 months and children living at home with their parents. Furthermore, the initiative would provide currently uninsured drivers a discount proportional to the number of years they have had insurance in the previous five years—“an 80 percent discount if you can piece together four years of coverage” and “up to a 40 percent discount for two years,” calculates Rachel Hooper, spokesperson for the supporting campaign.

“Proposition 33 benefits both those that currently have car insurance and those that don’t,” explains Hooper. “It gives more power to the consumer with the power to shop for insurance companies,” she adds, likening it to the ability to switch mobile phone carriers.

But, as with its predecessor, Proposition 33’s main proponent is Mercury Insurance, and to date, founder George Joseph has personally provided over $8 million to fund the campaign.

Going bumper to bumper against the practically single-handedly supported proposition is Consumer Watchdog. The proposition will negatively affect millions of California drivers, says spokesperson Carmen Balber.

In previous years, according to Balber, Mercury Insurance had illegally surcharged customers without prior coverage by 40 percent. Additionally, in states where Mercury had been legally allowed to add the surcharge, rates rose from 35 to over 100 percent.

“We’re talking at least a 35 to 40 percent increase in insurance rates; in the standard family, that could easily increase rates by a thousand dollars a year or more,” Balber concludes.

So far, Proposition 33 seems to have some bipartisan support. Along with the Republican Party, former Senate president pro tempore Don Perata and California State Sen. Juan Vargas—both Democrats—openly endorse it.

However, Consumer Watchdog has noted in the past that Mercury Insurance spent more than a million to help defeat Vargas’ state senate opponent, Mary Salas, in 2010. And in Perata’s case, Mercury Insurance has contributed tens of thousands of dollars to the former senator’s past campaigns, community organizations and consulting company, according to the Oakland Tribune.

Consumer Watchdog and Mercury Insurance have been driving up each other’s walls since 1988 with the passage of Proposition 103, composed by Consumer Watchdog founder Harvey Rosenfield.

Proposition 103 outlawed the practice of determining auto insurance rates based on a person’s history of insurance, instead requiring rates to be based on the insured’s safe driving record, annual mileage and years of driving experience. Before Proposition 103, insurance rates were set by companies without approval from an insurance commissioner.

“Proposition 33 is trying to make legal what is currently illegal—placing a surcharge on people that, under the current law, wouldn’t have had to pay extra,” warns Balber. “If voted to pass this year, Proposition 33 would overturn the central protection that Proposition 103 provides.”

Referring to the failed Proposition 17 in 2010—basically Proposition 33’s predecessor—a Consumer Watchdog spokesman observed: “Insurance companies don’t put things on the ballot that are going to help the consumer; they do things to help themselves. Prop. 17 is entirely backed by Mercury Insurance, and changes the law to favor big insurance companies.” Mercury reportedly went on to spend $16 million on that failed campaign.

As of right now, Mercury is the state’s second-largest provider of car insurance, and other providers are wary of their competitor’s actions.
“We believe in our own loyalty discount program, which provides our customers with an incentive to continuously maintain coverage,” says Sevag A. Sarkissian, spokesperson for State Farm Insurance. So far, State Farm has taken a middle-of-the-road position on the initiative. Sarkissian adds that if the proposition is passed, State Farm will analyze it to determine how it can be used to benefit its customers.

“I think that for most of the insurance companies, this is a fight that they’re not willing to take on,” Balber says. “This is a measure that [Mercury Insurance] has tried and has failed to pass for the last 10 years. If I were another insurance company, I wouldn’t want to throw my money away.”

Consumer Watchdog’s legal team scored a victory earlier in August, when a Sacramento Superior Court judge rejected arguments in a lawsuit filed by insurance industry backers of Proposition 33. The ruling also maintained the Attorney General’s ballot label as “Changes Law to Allow Auto Insurance Companies to Set Prices Based on a Driver’s History of Insurance Coverage.”

Though the proposition’s total wording has been altered to address military personnel and the unemployed, opponents point out that many other populations would be negatively affected by the initiative’s passage. Those who consciously decide not to drive a car for five years would be ineligible, as would those who choose alternative forms of transportation, like riding a bike or taking public transit. Those who simply couldn’t afford a car would be punished as well.

“At the end of the day,” Balber says, “if I were a responsible agency, I wouldn’t want to be associated with something that could take insurance away from underprivileged populations.”