What Prop 33’s Defeat Means for California Car Insurance

Election Day 2012 has come and gone. Dianne Feinstein was easily reelected to the U.S. Senate. A total of 37 out of 47 U.S. Representatives from California were re-elected to Washington. And a couple of new taxation measures were approved by voters in the Golden State.

But one of the ballot proposals which was given a thumbs-down by California voters was Proposition 33, which would have affected how auto insurance rates are computed in the state. This petition-driven initiative would have allowed auto insurers to base their premium prices on whether a driver maintained continuous coverage over the previous five years with any carrier.

Pro vs. Con

Proponents of Proposition 33 claimed that this measure would help most California drivers save money. Currently, drivers in the state can receive a discount if they keep their insurance coverage with the same carrier for a certain period of time; but if they switch insurance companies, they lose that discount. Proposition 33 would have allowed these insurers to continue offering these discounts if the driver maintained continuous coverage for five years, regardless of whether that coverage was with the same company or not.

But consumer advocates opposed the law, saying that it would raise insurance rates for many people. They claimed that insurers would offset the lower premiums paid by newly-discounted drivers by raising the premiums of those who had “gaps” in their auto insurance coverage over the previous five years. People who lost their jobs and couldn’t afford auto insurance (and who would therefore hopefully avoid driving altogether as per California law) would conceivably fall into that category.

What Does This Mean?

So now that Proposition 33 was defeated at the ballot box, what does this mean for California drivers?

The good news is that no one will see their auto insurance rates go up. The primary criteria for determining California auto insurance premiums will still be driving experience, driving record, and number of miles driven annually (as set forth by statute).

Plus, drivers who stay with their current auto insurance carriers for years at a time will continue to qualify for a discount on their premiums. And drivers who cancel auto insurance for any length of time won’t be penalized by having to settle for significantly higher premiums.

But there is a downside. Drivers wishing (or being forced) to switch auto insurance carriers will lose that “customer loyalty” discount when they sign up for their new policy. Moreover, insurance companies are prohibited by law from using discounts to attract new customers — so it’s likely that a change in auto insurers will result in higher premiums for any California driver who makes the switch. The net effect may be a reduction in competition among auto insurers in California.

Whether the proposal’s failure is good or bad largely depends on what group of people you identify with. If you have canceled your auto insurance in the past five years due to joblessness or any other reason, then you will appreciate the fact that your rates won’t go up because of the gaps in your coverage history. But if you have maintained auto insurance since you have started driving in the state and would welcome an opportunity to shop around for lower auto insurance rates from other carriers, then you will probably be frustrated by its defeat.

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