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home / insurance / in the media

Sacramento Bee
Jul 18, 2003

by Aurelio Rojas, Bee Staff Writer

Insurance discount bill sent to Davis

The firm backing the plan is a big donor to state leaders.
The Assembly on Thursday approved and sent to the governor legislation that would allow auto insurers to offer discounts to longtime customers of competitors.

But opponents contend Senate Bill 841 would violate Proposition 103's ban on basing rates on lack of prior insurance and lead to higher premiums for lowincome drivers with gaps in their coverage.

The sponsor of the bill, Mercury Insurance Group, has contributed $1.2 million to lawmakers since 2001. The measure's author, Sen. Don Perata, D-Alameda, received $35,000, and Gov. Gray Davis got $25,000.

"This is the juice bill of the year, the most blatant cash-for-influence legislation," said Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights.

The governor vetoed a nearly identical bill last year on the advice of former Insurance Commissioner Harry Low, who said it violated the intent of Proposition 103, the landmark 1988 auto insurance reform bill.

Court said the current bill is a litmus test on whether Davis will serve the interests of consumers or bow to campaign contributors as he faces a recall attempt.

Russ Lopez, a spokesman for the Democratic governor, said Davis has not taken a position on the bill, which is opposed by the state Department of Insurance.

The Foundation for Taxpayer and Consumer Rights has vowed a court challenge if Davis signs the measure, which was approved 55-13 by the Assembly.

SB 841 would allow auto insurers to offer "persistency discounts" to longtime customers of competitors. The Department of Insurance already allows insurers to offer discounts to their own customers, but the discount is not transferable.

Drivers with more than a 90-day gap in insurance coverage in the previous five years would not be eligible for the discount. The bill gives military personnel a two-year grace period.

But opponents note the discount would not apply to people who are hospitalized or otherwise unable to drive for an extended period of time, students studying abroad and others with similar gaps in coverage.

George Joseph, chief executive officer of Mercury Insurance, said allowing discounts to become "portable" will increase competition and lower rates for motorists who shop around.

Good drivers will be rewarded, said Assemblyman Ed Chavez, D-La Puente, who voted in favor of the measure.

But Assemblyman Paul Koretz, who voted against the measure, cautioned about "unintended consequences."

"This bill says, in effect, 'If you haven't had insurance for 90 days or more, you don't get this discount,' " said Koretz, D-West Hollywood. "So if you're getting the discount, someone else is paying for it."

Assemblywoman Jackie Goldberg, D-Los Angeles, predicted low-income drivers will end up subsidizing more-affluent drivers.

"That's unless you believe insurance companies will eat their profits to pay for these discounts, and I haven't seen an insurance company that doesn't try to squeeze out every cent of profit it can," Goldberg said.

Mercury has carved out a niche in low-income areas. Industry analysts say the bill will help the company reposition itself and gain market share from competitors.

Joseph said Mercury has been making campaign contributions to lawmakers for more than 30 years. He denied allegations that SB 841 cleared both houses of the Legislature because of the company's largesse.

"Everyone who supports legislators is not a dirty bird," he said. "Teachers, lawyers and other interest groups contribute, and we're no different."
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The Bee's Aurelio Rojas can be reached at (916) 326-5539 or arojas@sacbee.com


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