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Who Wins If California’s Proposition 33 Passes?

Known as Proposition 33, California’s 2012 Automobile Insurance Discount Act could dramatically alter the price of auto insurance for people living in that state, as well as for people in other states around the U. S. if they follow suit. While automobile insurance agents and brokers who are the main groups supporting the bill claim it will save drivers money, others, such as Consumer Watchdog, argue the bill could cause premiums to increase by one-third.

First, let’s look at what both sides do agree about. As in all 50 states, California requires drivers to purchase car insurance but not everyone does. To urge more people to buy and maintain coverage, insurance companies give discounts to their customers who do this. However, those discounts only applied when customers stayed with the same auto insurance company. Proposition 33 would allow consumers to transfer that discount from one auto insurer to another. However, it would also allow insurance companies to penalize individuals who do not maintain continuous auto insurance coverage by charging higher premiums.

It’s this last provision that has upset some people. In part because it overturns a California law that had been on the books since 1988 that prohibited the financial penalizing of uninsured drivers who were attempting to obtain insurance. The original law came about following a 1987 court case challenging California’s auto insurance requirement. According to the state’s Court of Appeal, insurance companies at the time were essentially excluding uninsured drivers from the market by making the costs of getting insurance unaffordable or by outright denying them coverage.

While Proposition 33 may reward consumers who maintain coverage, it could also cost consumers who do not – sometimes through no fault of their own – more in the long run. For example, an individual who has not owned a car for the last five years would be penalized if he purchased a car and attempted to insure it even though he previously had no reason to have car insurance. Some consumer groups argue that such a penalty would be unfair and that these penalties would, by and large, target those most unable to pay higher premiums, such as low income workers.

However, Proposition 33 does offer some protection to consumers who cannot continue their insurance coverage, at least for limited periods. People who lose their job, are sent overseas for the military, or who face unexpected financial hardships will not necessarily be penalized. Those who lose their job will not lose their discount for up to 18 months while those experiencing a hardship only have 90 days. Members of the military will not lose their discount as long as they are stationed overseas.

Unfortunately, one of the unintended consequences of the bill may be that more uninsured drivers are on the road. With drivers being penalized as much as $1,000 or more for not carrying coverage continuously, those who want to get coverage may find it impossible and may resort to taking the risk of driving without insurance. That outcome may not be good for anyone.