Mercury Insurance seeks to raise California insurance rates by 8.8% for approximately 300,000 homeowners and renters with Mercury policies. If approved, the increase would generate an additional $19 million per year for Mercury. The insurer is seeking the increase even though it paid less than 50 cents in claims for every dollar it charged for homeowners insurance in 2010 and despite reporting a $152 million annual profit from its company-wide insurance sales.
The nonprofit Consumer Watchdog, which has formally challenged Mercury's proposed increase, believes that California's seventh largest home insurer cannot justify any rate increase and should be lowering its rates by at least 5.8% instead. Under the voter-approved 1988 insurance reform law, Proposition 103, home, auto and most property-casualty insurance companies must publicly justify their rate changes before they can take effect and members of the public have a right to challenge increases. A public hearing to evaluate the rate hike proposal began Wednesday at the California Department of Insurance in San Francisco.
"Mercury Insurance wants to soak California homeowners and renters with a substantial and unjustified rate hike by manipulating data and trying to pass on political and other costs that should not be included in customers' premiums," said Consumer Watchdog Executive Director Doug Heller. "Californians enacted Proposition 103 to prevent insurance companies from playing games with their data and to make sure the insurance companies are held to account through public hearings like the one we begin today."
In justifying its substantial increases, Mercury argues that anything less than its requested 8.8% increase would be an unconstitutional limit on its profits, a claim that Consumer Watchdog calls outlandish and greed-driven. Mercury also said that a catastrophic rainstorm that pummeled Southern California in December 2010 should be treated as a regular occurrence. Consumer Watchdog said the 2010 rainstorm losses should be treated as a catastrophe-related loss, which would have less of an impact on premiums in this instance.