Good Driver Discount—What is it?
Before I answer the burning question posed above, we will take a short trip down recent insurance history lane. Namely the late 1980's and Ralph Nader and that greatly championed insurance bill called Prop 103, which was supposed to reduce insurance rates 20 percent.
Let me tell you, that was a scary time. I was working in a small agency (6 of us), and I was maybe 22 and it was 1989 and I had a great future ahead of me and the insurance world was about to end. Ralph Nader introduced legislation that would, when passed, decrease the value of insurance agencies by 20 percent, create more paperwork for agents and consumers, and lead to merely a reshuffling of data, and no real rate decreases at all. People were "mad as hell and not gonna take it anymore" about insurance rates so Prop 103 got passed and insurance carriers reacted by suspending the ability for agents to write new business. So anyone not having, yet wanting auto insurance was out of luck; it was an industry shut-down. Like an animal hit hard and fast, stunned it slunk into its dark actuarial cave to brood and recover. For about a month things were grindingly slow. Mr. Stan had circles under his eyes and walked around the office looking grim. Things were in fact grim. He told us he didn't know if he would have to let some of us go.
Mr. Stan, may he rest in peace, was a taskmaster, a perfectionist, and and I'd have to say, a good man. Everyone who worked in the office had been there 10 years or more. The original office manager had been with him since day one 20 years earlier and her daughter worked there, and one excellent son and one disappointing one (but the apple of Mr. Stan's eye. Lord, how men love their prodigals). Me, I'd been there since 19, I got the job through the Chamber of Commerce. Mr. Stan made me take a spelling test, a vocabulary test, the requisite typing test, and a three-page basic math exam—back then we hand-rated stuff using a calculator so you had to be able to carry "ones" and know the difference between a comma and a decimal point. But I got the job and he compensated us well and rewarded us for effort, but he liked to yell, and held up my typed correspondence to the light to see if I'd struck-over typing errors. He made me get him coffee throughout his tenure there and I tried every underhanded approach I could to getting out of it. But coffee could never be too strong or too weak or have too many or too few grounds or have too much soap in the cup or special-receipe instant ground coffee with hot water or instant granuals with with cold water. He merely made me do it again until it was right and I can say I made every cup of coffee for him, first to last during my 5 years there and I resented nearly every single cup. I think he was trying to tamp all the wild out of me, all the wild that comes from the wrong side of the tracks but straight and narrow, that tries her best but gets kicked in the teeth and doesn't have the words or skills to protest. I would eventually leave and travel, then go to school, become a fleamarketeer, street tamale maker, slumlord, pet-store employee, office temp, substitute teacher, but I always returned to insurance because it has had a pull on me I can now only understand. But, I've gone off the path. Back to insurance history (see, I am a real person with a mind that bends and detours, but it's not the destination but the journey that matters. Stick with me and I will entertain and educate you).
Okay, so Prop 103. It passed. Insurance companies shuttered their doors for new business. The industry was shell-shocked. Then the insurance companies with their fancy lawyers found the loophole. They restructured their underwriting and created new discounts and deleted old ones. When that didn't reduce the premium enough, they mugged the agents, went straight for their wallets. They reduced agency commissions to make up some of the money they would lose through the enactment of Prop 103. Who paid for this? Agents. Overnight they saw their commissions reduced by up to 20 percent of their previous value.
Now let me tell you about agents, good agents and the truth of writing business. It takes money. You've got the usual office expenses (rent, payroll, utilities, sticky note pads). Then you advertise. Maybe you make 10-20 percent commission off written premium minus policy fees (so if a policy costs $500, the commission would be maybe on $450 of that (50 being a policy fee), so a 15 percent commission would net you $67.50 for the full year. Okay, someone has to take info and quote it. Someone has to make an appointment and write it. Someone has to check it over when it comes in the office, or answer any underwriting questions the insurance company might have. Someone has to talk to you everytime it threatens to cancel for new pay or your lender changes or you want to change coverage or want a quote on changing the coverage. The saying is, you don't make money the first year. It is on renewal, when the policy has stabilized, all the questions are answered that an agent starts to make money. Of course, the insurance company realizes the work flow has decreased once the policy is in place, so they reduce commissions to the agent accordingly and automatically.
Essentially, your agent does all the work and what the insurance company does is bankroll the coverage. Period. So overnight, the value (insurance agencies do have "value" meaning the client base and existing policies make revenue at every renewal so agents will work for 20, 25 years then sell their book of business and retire) of agencies declined 20 percent. Imagine, your retirement plan gets reduced by that much. It will encourage you to work longer instead of retiring. That's what happened to a lot of agents. And the insurance carriers escaped unscathed nearly, or less so minus huge, huge legal bills. What you got out of all this, what the consumer got, was this thing called Prop 103 which legally required that insurance companies observe this thing called the "Good Driver Discount." They had to set their underwriting requirements so that anyone who met this specific criteria received a 20 percent discount. Now, wouldn't you be stoked, if you were told a law had just been passed and you'd get 20 percent off all your gasoline purchases? Well, you can bet the petroleum agency, like any other animal fighting for its livelyhood, isn't going to just start sending checks in the mail. Oh, there were checks sent in the mail, but not to everyone, and not what was expected, and you know what, after they hype, after the consumer victory, nothing had really changed. Rates had changed very little.