A bad ‘discount’ on car insurance

Should you be penalized under the law if you previously hadn’t been able to afford a car, chose not to own a car or if you lived for a time in a city where you didn’t need one?

A Los Angeles insurance billionaire has made an $8-million bet that says you should, contributing a chunk of his fortune to an initiative he hopes to qualify for the June 2012 ballot.

George Joseph, chairman of insurer Mercury General Corp. and tied as the 385th richest man in America, claims that he simply wants to be able to charge people a little less for having insurance continuously, but it’s illegal to do so. What he doesn’t say is that those who didn’t have insurance because they had not been driving or are in the growing ranks of the long-term unemployed would have to pay more — likely much more — when they buy or restart auto insurance.

As California insurance commissioners, attorneys general, courts and voters have repeatedly pointed out to Joseph over the last two decades as he has tried to change state insurance law: One person’s discount is another’s surcharge.

In June 2010, voters rejected Proposition 17 (which was essentially the same as the measure he is pushing this year) despite the $16 million Mercury spent on the campaign. This latest attempt exempts soldiers and those who have been unemployed for 18 months from the surcharges. But anyone else who has stopped driving for any period of time could be hit hard. After 18 months of being out of work and taking mass transit, sorry, Commuter Charlie. When you’re ready to get in the car again, you will pay more for insurance. Same goes for someone who’s moved to Los Angeles but has lived in, say, Manhattan for the last 10 years and didn’t need a car.

In other states, where this kind of pricing is legal, Mercury charges over 50% more for basic auto insurance if an applicant did not have prior insurance, even if the reason was because they didn’t drive or have a car.

For example, online Mercury quotes for Texans and Floridians who did not own a car previously are 51% and 55% higher, respectively, than for those who did.

With recent U.S. Census data showing that the poverty rate hit a 52-year high in 2010, it’s worth remembering that the inability to afford auto insurance was once a crisis for Southern California’s poorest communities that perpetuated and criminalized poverty.

After mandatory auto insurance laws with stiff penalties were enacted in California in 1984, low-income groups and civil rights activists sued the state government, arguing that low-income residents shouldn’t be forced to buy auto insurance they could not afford. Insurance companies like Mercury charged them thousands of dollars above what others with similar driving histories were charged, based on their ZIP Codes and/or lack of prior insurance.

In the 1987 King vs. Meese decision, the California Supreme Court acknowledged the problem — requiring coverage but with no protection against higher premiums for having no prior coverage — but said a change in the law was needed to fix it. In 1988, voters did just that and passed Proposition 103, which ended both ZIP Code-based premiums and charges based on prior insurance coverage. This law bases premiums primarily on the insured’s records: how many years they had driven, their driving record and how many miles they drive annually.

Joseph has been trying to undo Proposition 103 since California voters enacted it. He claims he simply wants to woo other insurance companies’ longtime customers. His bet is that a conservative electorate turning out for the June 2012 Republican primary will be unconcerned about making coverage unaffordable for the working class.

This time, Joseph is funding the battle personally, hoping voters won’t see that insurance company money is driving the initiative. He has exempted soldiers to appease veterans groups offended by his disregard of service members in the 2010 initiative and to take away a powerful political argument with conservatives.

The Consumer Federation of America reports that Proposition 103 has saved the state’s drivers $62 billion on their insurance bills between 1988 and 2008, and that California has the fourth-most-competitive auto insurance market in the U.S.

It’s hard to imagine turning back the clock to the days of rampant auto insurance price discrimination. But if Joseph has his way, insurance companies could raise prices on the people least able to afford insurance and discriminate against them based on insurance industry beliefs that the poor, students and the long-term unemployed are the least desirable customers.

If Joseph’s initiative qualifies for the ballot, election officials need to add something that’s missing from the initial summary: that people who don’t drive would be financially penalized for not having insurance.

A billionaire should not be able to use the initiative process to deceive voters and reverse one of the most successful insurance reforms in U.S. history.

Jamie Court is president of Consumer Watchdog and the author of “The Progressive’s Guide to Raising Hell: How to Win Grassroots Campaigns, Pass Ballot Box Laws & Get the Change You Voted For.”