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When it comes to pricing insurance, it's best to match risk and reward, and the only way to match risk with reward is by using information about past behavior. Insurance markets fail when that information is not forthcoming. Or when it is deliberately withheld, as it currently is in California, thanks to Proposition 103, passed in 1988. Under California law, drivers who follow the rules and carry car insurance earn a discount after five years of continuous coverage. But if they decide to switch insurance carriers, or drop coverage because of illness or because they were serving in the military, they lose that discount.

Prop. 33 on the Nov. 6 ballot allows consumers to keep their "continuous-driver" discount if they switch insurers. Drivers also would keep a persistency discount if their coverage lapses because of military service or unemployment of at least 18 months.

In a perfect world, insurers would be able to create whatever rating models they wished and would be free to compete for customers. California's Insurance Commission, however, allows insurers to write policies based solely on 18 criteria. Prop. 33 would add another criteria – continuous driver history – and that would likely go a long way to lowering car insurance rates, as has been found in the 48 other states that allow continuous-driver discounts.

The reason a continuous-driver discount winds up reducing, rather than boosting, insurance prices is evident when you consider two hypothetical drivers. The first driver's insurance history is transparent to every insurer, including competitors, while the second driver has no checkable history. Which driver would be riskier for to an insurer?

Read the full story from the Orange County Register.

(Please note the opinions expressed here are from the Orange County Register and are in no way endorsed by True Rate Insurance.)
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