Proposition 17 is an initiative sponsored by Mercury Insurance that seeks to change state insurance law.

Proposition 103 of 1988

In 1988, the climate surrounding auto insurance was similar to the climate surrounding health insurance today. There were complaints about skyrocketing premiums and the practice of basing premiums on where drivers lived, rather than on their driving records. In November 1988, Proposition 103 prevailed over three competing initiative measures on auto insurance. Proposition 103 rewrote the insurance code, specifying the factors that can be used to determine auto insurance rates, authorizing good driver discounts, and changing the office of Insurance Commissioner from appointive to elective, among other changes.

Mercury’s Attempts to Change the Law

This is not the first time that Mercury Insurance, sponsor of Proposition 17, has attempted to amend the provisions of Proposition 103. In 2003, Mercury sponsored legislation (SB 841) that made the same change to law as Proposition 17 proposes. The 2003 law was passed by the legislature, but was taken to court by consumer activists. The courts ended up throwing out the 2003 law on the grounds that the legislature cannot pass an amendment to Proposition 103 that does not further its purposes. (See Foundation for Taxpayer and Consumer Rights v. Garamendi 132 Cal.App.4th 1354.)  Consequently, the changes in the law that Mercury has been seeking can be instituted only if approved by a vote of the people.

Mercury is the third largest auto insurer in California by market share, and is alone among the state’s major auto insurers in attempting to make this change in the law.  According to an article in the LA Business Journal, Mercury is known in the industry for its aggressive discounting, and believes that, if Proposition 17 passes, it can take customers away from its competitors by offering the discounts authorized by this measure.

Department of Insurance Report

The Legislative Analyst requested a report from the Department of Insurance regarding the possible impact of Proposition 17 on insurance rates. The Department responded that every auto insurer “must have an approved rate plan that establishes its average premium” and that, to maintain the average premium, every discount must be balanced by a corresponding surcharge. (This statement is the basis of one of the opponents’ main arguments that is disputed by proponents.)

The Department’s report went on to state that insurance rating is extremely complicated; the precise impact of this measure on insurance rates cannot be predicted; and that the insurer could file a new rate plan or a new class plan that would change the amount of the average premium.

Is There such a Thing as a “Continuous Coverage” Discount?

The correct term under the law is “loyalty persistency” discount. Insurance companies provide this discount to their long-term customers as an incentive not to switch to another company, and because it’s in the insurers’ best interests to retain these customers.

Legal Challenge to Arguments and Ballot Title & Summary

Proponents filed a lawsuit asking the court to delete “false and misleading information” in the opponents’ arguments, and to change the wording of the ballot title & summary, which states that Proposition 17 “will allow insurance companies to increase the cost of insurance to drivers who do not have a history of continuous coverage.”  The primary argument that proponents attempted to delete was that “Proposition 17 will result in a surcharge for California drivers.” The court refused to order a change either in this argument or in the ballot title & summary, but did order minor changes in two other arguments.