Posted on 15 Feb 2010
California's landmark automobile insurance law, Proposition 103, has been a bone of contention for more than 20 years between Mercury General Corp. Chairman George Joseph and consumer advocate Harvey Rosenfield.
The two have battled in the courts, the Legislature and the media over complex regulatory questions that affect billions of dollars in premiums paid by the state's 23.7 million licensed drivers. Now they're squaring off over a Mercury Insurance-sponsored initiative on the June ballot. Proposition 17 would rewrite state law to allow insurers to attract new customers with discounts, as long as the drivers have been insured for most of the previous five years.
But in the zero-sum world of insurance, one driver's discount must be offset by another driver's surcharge. California insurance law requires companies to have an approved rating plan based on an average premium.
As a result, giving discounts to long-term insured motorists means rates need to be raised sharply for newly insured customers -- typically those who were uninsured or let their policies lapse more than 90 days over the previous five years.
The existing law, the Rosenfield-written Proposition 103, allows insurers to offer such discounts only to their own policyholders.
That 1988 initiative was aimed at rolling back rates and creating state oversight of future rate hikes. It also prohibited companies from offering discounts to lure customers from other firms. The ban was aimed at encouraging insurers to sell new policies to the previously uninsured at rates that were not exorbitant.
Combat over the latest initiative escalated last week when the state Department of Insurance released legal documents sought by the San Francisco Chronicle. The documents accused Mercury of illegal practices, such as unfairly denying coverage and charging discriminatory rates to motorists who were not at fault in accidents, were members of the armed forces or worked in certain professions.
In a related filing in an ongoing enforcement action, the Department of Insurance was stinging in its criticism. Mercury has a "lengthy history of serious misconduct" and has an attitude of "contempt toward and/or abuse of its customers, the [insurance] commissioner, its competition and the Superior Court," the department said.
Mercury, which mostly sells auto and homeowners' coverage and is the sixth-largest insurer in the state, paid $300,000 to settle the allegations. A spokesman called them "unsubstantiated and not egregious."
Kathy Fairbanks, a spokeswoman for Californians for Fair Auto Insurance Rates, the campaign committee created by Mercury to promote the initiative, denounced the department's revelations as an attempt to muddy the Proposition 17 message that 80% of the state's drivers would qualify for the discount.
Mercury bankrolled the committee with $3.5 million in donations, about 98% of its funding to date. No other insurance company or trade group has joined the effort.
Rosenfield contends that voters need to know that if they pass Proposition 17, they would be rewarding Mercury for its past misconduct.
"We have an insurance company that . . . was overcharging sponsoring a ballot measure that would legalize the overcharging," he said.
Mercury and Rosenfield both muster legitimate arguments for or against Proposition 17, said Brian Sullivan, editor of the Auto Insurance Report, a national newsletter in Dana Point.
Insurers have solid actuarial evidence that people who consistently insure their cars file fewer claims, he noted. But society may not want to punish low-income motorists who struggle to comply with the mandatory auto insurance law.
"The question is not whether this is the right thing to do or the wrong thing to do," Sullivan said. "The real question is, what does the public think is fair?"