PORTABLE PERSISTENCY….KAPUT
Why do some legislators dislike allowing discounts to citizens who pay their insurance bills on time, all the time?
December 2005
Yah, go ahead and say that 5 times fast. What in the hell is going on in this industry? The beloved persistency discount has been executed. The stream of notifications from all of the various insurers continues to tax my fax machine for more paper and it is an unwelcome sight. The idea that I cannot offer an incentive and a discount to honest, hardworking, financially responsible and consistent premium payers convinces me that what is wrong is right and visa versa. The world is upside down. Sorry for the diatribe but my mind is doing 404(File not found) loops trying to understand why it is wrong to offer solid citizens a better rate than an individual who is responsible, in part, for the uninsured motorist claims losses. So let me get this straight. I want to insure a 35 single male with his new 2006 BMW. This customer, Mr. Wright, has been with CSAA for 12 years and has no claims, tickets or violations, owns a home and needs higher limits to protect his equities. I get another call from a perspective customer, Mr. Rong who wants to insure the exact same vehicle. His policy has been lapsed on this 1995 Nissan Sentra for four months and he has no real excuse other than his dog ate the bill. Mr. Rong has seen an advertisement in the Sunday paper and wants to lease the vehicle and therefore needs the same increased limits as Mr. Wright. He too, has an absolutely clear driving record but had a D.U.I. 5 ˝ years ago with an injury accident(now qualifies for the good driver discount due to the time that has elapsed since the incident). The current law would have you believe that these two risks are the same, according to the comparative rater. If you write preferred lines of insurance, you know damn well that ain't the same and underwriters as well as actuaries will tell you likewise.
I cannot wait for those individuals that put this law into place to open their upcoming renewal statement to see the increase in their auto insurance premiums. This will certainly send a wake up call. I believe the argument for the elimination of the persistency discount has to do with its prejudice against certain customers. We can go back to 2003 and witness the beginning of this argument. The Foundation for Taxpayer and Consumer Rights contended that the persistency discount "…lead to illegal surcharges for automobile drivers who lack proof of prior insurance." Harvey Rosenfeld, the president of the group in 2003 lead the march against the discount and here it is, more than 2 years later and his group has won their case, so it seems. To sum up what is happening here, Norwood and Associates, a government lobbyist firm, released the following summation, "Late last week, Los Angeles County Superior Court Judge Dzintra Janavs threw out legislation passed last year that would have allowed automobile insurers to reward drivers who haven't had lapses in insurance coverage. The bill permitted insurers to offer a persistency discount for individuals who continuously maintain insurance, even with different insurers, a so-called portable persistency discount. SB 841 by Senator Don Perata (D-Oakland) was signed into law by Governor Davis last August; however, consumer and civil rights groups filed a lawsuit claiming that the bill violated Proposition 103 and unfairly targeted low-income drivers. The Office of State Attorney General Bill Lockyer defended the measure in court, contending that SB 841 (Perata) furthers the purpose of Proposition 103 and could save Californians a lot of money. Deputy Attorney General Stephen Lew argued that the law would boost competition in the insurance industry and lower rates for insured drivers. Nevertheless, Judge Janavs agreed with the consumer and civil rights groups, ruling that the law directly contravened Proposition 103, which specifically prohibits insurers from penalizing uninsured motorists trying to buy insurance. Judge Janavs also stated that the Legislature overstepped its authority to amend Proposition 103 by passing SB 841. The judgment invalidating SB 841 (Perata) is expected to become final in early February. Deputy Attorney General Stephen Lew said the state would likely appeal. SB 841 was supported by Mercury, Progressive and 21st Century Insurance Companies and the Insurance Agents and Brokers Legislative Council." In a document dated November 1st, 2005, the D.O.I. released the Invalidation of SB 841 bylaws which clearly state what insurers must do in order to be in compliance with the D.O.I. regarding their pending or current filings. And they are: 1) Effective immediately, any class plan application which an insurer submits, or which is currently pending, must reflect the court's decision regarding persistency and must include a revised sequential analysis, if necessary. Any class plan application that does not comply with the court's decision will not be approved. 2) Any insurer wishing to use the optional rating factor of "persistency" must have a class plan on file with and approved by the Commissioner which complies with CCR section 2632.5(d)(11). 3) Regardless of the terms of any insurer's approved class plan, on or after December 5, 2005, no insurer may apply an SB 841 persistency rating factor, or rating factor similar to SB 841, when issuing a new or renewal insurance policy. Any policy issued on or after December 5, and any renewal which takes effect on or after December 5 must apply a persistency discount which complies with CCR section 2632.5(d)(11).
So where do we go from here? I would suggest, and I am sure there are those that are already considering it, that insurers offer other discounts that are not used as widely as they should, including the Affinity Discount. If you crunch the numbers, you will find that certain Engineering, Scientific and Educational Degree individuals yield lower loss ratio results and you have the support of knowing that other carriers are already using these discounts to offer very competitive rates, i.e., Mercury Insurance Group, St. Paul Travelers, Safeco Insurance Company, Western United Insurance Company and many others. Another idea would be to increase the multi-car discount to those clients that have proven lower loss ratio results. The idea is that when a carrier submits their class plan, empirical evidence must be submitted to the D.O.I. proving that this discount is deserved based on the findings and those findings would be that "…a policy which includes raised limits of at least 50/100/25, full coverage on at least 1 vehicle and a homeowner" deserves the "superior risk" discount. Though this is only a passing thought, the idea is to offer the D.O.I. evidence that, like the Affinity Discount, there are certain scenarios that deserve an additional discount. In the time that I have been insuring preferred auto risks, the characteristics that holds true in almost all of them include one or all of the following:
1)College educated, 2)Liability limits of at least 100/300/50, 3)Multiple Cars, 4)Multiple Drivers, including youthful operators, 5)No more than 1 violation/policy, 6)No more than 1 non-Bi accidents/policy and 7)No major violations. I am sure there are some actuarial minds that could sculpt a discount out of these factors and there may be a few others that I have failed to mention. It is time to look more closely at your books of business and isolate your best risks, find the common ground they have and create a provable discount and don't wait for the reversal of the Portable Persistency Discount. I can remember a discount that was created by Risk General Insurance, the predecessor to Reliant General, which gave 25% off of the physical damage rates if the insured agreed that there was no coverage if the vehicle was involved in an accident where the named insured was arrested for an alcohol related offense.
Most of us agree that the persistency discount was mostly good and insurers will adjust their rates accordingly to avoid losing business but in the short term, it is a bit confusing to decide what to do from here. Remember, it has happened to ALL carriers so the playing field has not really changed except for those who had a discount that was one or two deviations away from the median(they would have a decided advantage or disadvantage depending on which side of the scale they were on with their discount amount). Interestingly, Mercury Insurance released their new class plan/revised rates and after comparing a few of my customers rated before and after the 12/5/2005 cut-off(and assuming that Mercury had planned this outcome), the higher risk drivers have had a rate reduction and the more preferred drivers have seen a bit of an increase. It looks like the elimination of the persistency discount has given the higher risk, less experienced and those with little or no prior insurance proof a better rate at the expense of the preferred tier customer. Does that seem Wright or Rong? I will say this in favor of the Portable Persistency Discount. I do not have to call multiple insurers to get "Letters of Experience" anymore and this has allowed me to write more home and auto insurance customers with the multi-policy discounts. I am wondering which insurers will become proactive in their quest to look more closely at their book and propose some additional discounts to those deserving customers -- the same type of customer that qualified for the persistency discount and yes there are common threads.