Like half of the statewide initiatives this year, Proposition 33 wouldn't even be on the ballot were it not for its billionaire champion George Joseph, the founder and chairman of Mercury General Corporation. Joseph has spent tens of millions of his personal fortune over the past two decades attempting to change a few paragraphs of text in California's Insurance Code, claiming all along that he's interested in strengthening competition in the industry. But his newest proposal, according to those who have opposed his efforts in previous years, is no different from his past attempts: Prop 33 would cause costly rate hikes for low-income communities of color, ushering us back into an unjust era of insurance redlining.
At first glance, Prop 33 seems straightforward and reasonable. According to the official ballot label, Prop 33 "changes current law to allow insurance companies to set prices based on whether the driver previously carried auto insurance with any insurance company. Allows proportional discount for drivers with some prior coverage. Allows increased cost for drivers without history of continuous coverage."
But opponents of Prop 30 contend that the seemingly benign language would, in reality, be devastating to low-income motorists. That's why most consumer advocacy groups and racial justice organizations strongly oppose the measure. "What Prop 33 does is create a new thing that insurance companies can base insurance rates on, but it's a thing that's currently illegal in California — prior coverage," said Carmen Balber of Consumer Watchdog. "The reason it's illegal now is because the industry was using that to discriminate."
As late as the mid-1980s, it was legal for financial companies to racially discriminate by penalizing people for where they live. Black, Latino, Asian, and other communities, segregated into specific quadrants of cities, were either forced to pay higher rates, or were entirely denied access to a whole array of financial products, including auto insurance.
In fact, residents of low-income areas continued to pay higher auto insurance rates in California until 1988, when state voters passed Proposition 103. That landmark law not only banned many practices used by the insurance industry to redline communities of color, but it also rolled back insurance rates for all consumers. Prop 103 required immediate auto, home, and business insurance rate cuts of 20 percent. Now insurance companies must open their books and justify rate increases, rather than force them upon customers. Prop 103 banned the use of zip codes in determining rates, and directed auto-insurance issuers to primarily base rates on a driver's record. Prop 103 was a game changer, and although elected officials were sometimes slow to enforce its rules, a small pack of watchdog organizations sprouted up to keep the industry in check.
Insurers never liked Prop 103, and Prop 33 would dismantle a core part of the 1988 reform measure. In recent testimony to the California Senate and Assembly, Richard Marcantonio of Public Advocates, a law firm that has litigated against insurance redlining since the 1980s, spelled out the ramifications of allowing insurance companies to penalize motorists for not having continuous coverage: "There are an estimated three and a half to four million uninsured drivers in California. Yet 40 to 50 percent of them live in just 2 percent of all of the state's zip codes. Those communities are characterized both by very low median incomes and by a minority population that is 65 percent or greater. So any burden on uninsured drivers as a group falls in a massively disproportionate manner, not just on people of color, but on the poorest families of color."
Balber said Prop 33 would basically reinstate redlining practices because lacking continuous coverage turns out to be a proxy for zip codes. "There's definitely a lot of data that shows that the proportion of uninsured drivers is higher in low-income and minority communities," Balber noted.
The Greenlining Institute — named in opposition to redlining — disagrees, however. Greenlining has actually endorsed Prop 33, even though the group joined Public Advocates, Consumer Watchdog, and dozens of other consumer and civil rights groups two years ago to oppose Prop 17, virtually the same ballot measure. Orson Aguilar, Greenlining's executive director, said Prop 33 improves on Prop 17 and won't result in redlining against communities of color. He characterized opponents as displaying a "knee-jerk reaction."
"This is not an insurance industry-backed thing," explained Aguilar. "It's one company that's behind this. Mercury thinks if they can have this as a law, they can take away customers from others by offering discounts." Mercury argues that Prop 33 will allow it to use cheaper rates to entice drivers to buy its insurance products. And Aguilar's group has worked with Joseph on Prop 33 to build in what they say are safeguards to protect vulnerable consumers — the unemployed and active members of the military — who would otherwise be gouged.
But Balber contends that these are just "cosmetic tweaks." Marcantonio said he respects Greenlining's work, but added, "people make mistakes. I think they made a mistake on this one."
According to reports filed with the California Secretary of State's Office through late last week, Joseph, a major Republican Party donor, had contributed more than $16 million to the pro-Prop 33 campaign. For Prop 17, his 2010 unsuccessful ballot measure, his company, Mercury General, spent $14.4 million.