Auto Insurance Rate-Setting System Center of Calif. Ballot Case

August 14, 2012

A court case in California involving a ballot measure that voters will decide on in November highlights the way the state allows insurers to determine their rates and the changes coming to the rate-setting system should voters approve the measure, according to Online Auto Insurance.

Proposition 33 would allow history of coverage to be used by insurers as a factor in determining a motorist’s rates and, if passed, would significantly change a decades-old system that shapes what consumers see when they get California auto insurance quotes.

The current system is structured primarily around Proposition 103, which was passed in 1988, and establishes three chief determining factors that insurers have to use in pricing motorists’ policies: their driving record, their annual mileage and how long they have driven.

In addition, Proposition 103 set 16 optional rate-setting factors, including how motorists use their cars, whether or not a training course was completed and the average claims frequency in their geographical area.

One of those current optional factors is a driver’s history of coverage with the company, which can net a driver discounts for staying insured with one insurer for a handful of years. Proposition 33 would expand that factor to allow policyholders to take their “continuous-coverage discounts” from insurer to insurer.

Proposition 33 opponents say adding that factor to the state’s rate-setting guidelines would actually hurt consumers, specifically drivers who lack a history of coverage for a number of reasons, ranging from canceling coverage because they were too ill to drive or because they went to college and decided they didn’t need a car. Motorists in those circumstances face a “hidden surcharge” and higher rates even though legitimate reasons caused lapses in coverage, according to Consumer Watchdog, a chief opponent of the proposal.

Proposition 33 opponents and supporters are in court over wording in the voter’s guide to this November’s ballot measures. The oppositional summary to Proposition 33 reads that it “changes current law to allow insurance companies to set prices based on whether the driver previously carried auto insurance with any company.”

In court documents, supporters said the phrase “set prices” was unfairly used and has negative connotations with price fixing.

Source: Online Auto Insurance

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