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San Jose Mercury News (California)
Jul 25, 2003
by Deborah Lohse; Mercury News
Car-insurance bill called unfair to poor;
PROPOSAL FAVORS 'LOYALTY DISCOUNT'A proposed law that purports to make car insurance cheaper for drivers who maintain their insurance coverage is being decried by consumer activists as a license for insurers to overcharge poor people.
The bill, which is awaiting signature or veto by Gov. Gray Davis, would mandate that any insurer offering a ''loyalty discount'' to its own long-term customers would have to offer the same discount to customers who had been with another insurer for an equivalent period of time.
Fans of the proposed legislation say it will benefit drivers with a long history of keeping their insurance paid up.
But critics of the proposed law, including the Foundation for Taxpayer and Consumer Rights, say the practice results in customers with the least resources getting stuck with bills that are sometimes $500 higher a year just because they didn't have insurance for 90 days or more.
The bill, sponsored by state Sen. Don Perata, D-Oakland, resurrects a proposal that the governor vetoed last year. Davis has not decided whether he will veto the bill again, an aide said.
Until recently, several insurers, including Mercury Insurance, offered such discounts. The practice became disallowed after a 2002 missive from the Department of Insurance, but the insurers complain that the department has flip-flopped on the issue over the years.
The companies are hoping the proposed law will resolve the matter in their favor.
Critics say the law would result in a surcharge for customers who have not had insurance before, or whose car-insurance policies are discontinued for 90 days or more. And such customers tend to be lower-income or those who have had recent financial hardships.
''If this bill becomes law, then it will be fair game to surcharge everyone, and talk about competition going out the window,'' said Douglas Heller, senior consumer advocate at the Foundation for Taxpayer and Consumer Rights.
Using data from Mercury Insurance's Web site, Heller said that a California customer who was uninsured before seeking coverage from Mercury would pay $200 to $500 more in annual premiums than a driver with continuous coverage.
What's more, the groups say that the bill violates provisions of the 1988 law Proposition 103, which they say prohibits insurers from penalizing customers simply because they didn't have insurance in the past.
Some insurers counter that Proposition 103 doesn't forbid them from considering a person's past insurance status at all; it just forbids them from using that criteria ''in and of itself'' to set prices.
Last fall, then-Insurance Commissioner Harry Low clarified in a legal ruling that Mercury and other companies must offer such discounts only to their own customers.
The current commissioner, John Garamendi, also opposes expanding the discounts to all customers for several reasons. Among them: A study of the practice showed that it resulted in only a small credit for those getting the discount, vs. a ''substantial surcharge'' on the previously uninsured.
Mercury's chief executive, George Joseph, said that if Mercury had to revise its practices now, it would force the carrier to unfairly raise prices for many of its current customers.
He said those who get the discount deserve it. ''Actuarially, people who come to us with a history of having maintained their insurance have a lower loss ratio,'' Joseph said.
Even if the law is changed the way Mercury wants, Joseph said, the insurance commissioner has the ultimate power to disallow rate increases if he thinks lower-income customers are being overcharged.
''The advantage of our bill is if you've earned this discount, it's portable and you can take it with you,'' Joseph said.
Critics accuse Mercury, one of the major corporate sponsors of the legislation, of using large campaign contributions to win support for the bill from insurance committee members. Joseph said the company's campaign contributions have been consistent with past years.
Davis has about two weeks to decide whether to sign the law. His legal staff is examining the bill to see if it is significantly similar to the bill Davis vetoed last year. An aide, Russ Lopez, said if the bill hasn't been changed, ''it will probably meet the same fate.''
Heller said his group will sue to have the law overturned if it is approved by Davis.
Contact Deborah Lohse at firstname.lastname@example.org
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