Is Proposition 33 the right Solution to California's Uninsured Motorist Crisis?

Depending on who is making the argument, Proposition 33 will greatly reduce California’s underinsured and uninsured motorist crisis or it will do little to alleviate the crisis. Worse: it may exacerbate the problem.

And the problem is bad. According to a recent study by the Insurance Research Council, 25% of drivers in California drive with no insurance. Drivers who are underinsured—they have the bare minimum insurance that would do little good in the event of a catastrophic accident—is also extremely high in the state. Given that the bare minimum insurance makes a driver legal but does not provide adequate coverage for many pedestrian accidents, bicycle accidents, or motorcycle accidents, any proposal that may help insure more drivers seems like a good one. 

But Proposition 33 is similar to a proposal that was rejected two years ago by California’s voters. Many voters did not think it would solve the problem. On November 6, they will have the chance to re-consider their vote.

This year’s Proposition 33 seeks to alter an existing policy that gives drivers a discount for continuous automotive insurance coverage. However, Prop 33 proposes letting that discount apply to continuous coverage no matter what insurance company the driver uses. In California, the law allows such a discount only for drivers who keep their insurance with the same company continuously. In one of the most publicized portions of the Proposition, active duty military personnel would be eligible for the discount even if they did not keep auto insurance while they were on duty and not driving their own vehicles. Currently, if a driver goes without insurance after previously having it, they do not get a continuous coverage discount. Members of the military, if they met particular criteria, would be exempt and allowed the discount if Proposition 33 passes.  

In short, Prop 33 seeks to give discounts to drivers who are continuously insured regardless of the insurance company that they use. It also proposes giving continuous coverage discounts to members of the military even if they let their California auto insurance lapse. Though this idea sounds attractive to many drivers, the support for the Proposition is not universal.  A major fear is that Proposition 33 will give discounts to drivers by raising the cost on newly insured drivers. This may actually prevent people from seeking insurance, critics say.       

In a recent endorsement article in the LA Times, the editorial board writes that “raising the cost of coverage for those without insurance doesn't help anyone on California's roads. Voters should reject Proposition 33” (http://www.latimes.com/news/opinion/endorsements/la-ed-end-prop33-auto-insurance-discounts-20120920,0,657143.story). They conclude that Proposition 33 will give costs reductions to people with persistent auto insurance and such reductions will be at the expense of coverage for new drivers or drivers who were previously uninsured. Even with the roundly celebrated idea of giving military personnel a discount, some critics say the law would simply contribute to the problem in California.

The need to have every single driver insured is a real one in California. Car accidents are inevitable. This includes catastrophic injury accidents. But due to high insurance rates, many drivers risk the threat of an accident. Keeping insurance rates reasonable should be a priority but Proposition 33 may not be the answer.  Many disagree.

The Proposition will encourage more competition amongst California’s auto insurance companies. They may aggressively encourage drivers to switch companies while still giving them steep discounts for continuous coverage. If free market competition is the best way to benefit consumers, then perhaps Proposition 33 is the answer. California has millions of drivers. They should all be encouraged to purchase such a vital commodity. Legal penalties and current incentives have not proven effective. Is the status quo good enough? Should free market competition have a greater say in the costs of insurance? Supporters and detractors or Proposition 33 will get their answer on November 6.

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