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Steadfast Believer in Numbers

The state's plan to revamp the setting of car insurance rates doesn't add up for Mercury's George Joseph.

February 05, 2006|Josh Friedman | Times Staff Writer

George Joseph has always had a head for numbers.

In World War II, he navigated a B-17 bomber through 50 combat missions. After the war, he earned a degree in mathematics and physics from Harvard. And the company he launched in 1962, Mercury General Corp., pioneered the use of ZIP Codes and other data in fine-tuning auto insurance rates.

So when California Insurance Commissioner John Garamendi recently announced plans to overhaul the way car insurance is priced -- making motorists' driving records the No. 1 factor -- it was almost as if he had proposed making two plus two equal five, at least to Joseph's way of thinking.

Insurance rates should be based on the statistical chances of a customer's filing a claim, the 84-year-old Joseph believes. Armed with years of empirical evidence, Mercury and most of the state's other insurers have concluded that the best way to calculate those odds is to look at where a driver lives -- specifically, his or her ZIP Code.

"People in rural and suburban areas will be forced to subsidize people in heavily urbanized areas -- that's my concern," the Los Angeles billionaire said of Garamendi's proposal. "Would it be fair for people in Burbank to pay more so that people in Beverly Hills can get lower rates?"

Consumer advocates say, however, that the Mercury approach defies not only fairness but also the law. Proposition 103, the 1988 auto insurance initiative, declared that rates should be based mainly on three factors: driving record, how many miles people drive and years of experience, in that order.

By homing in on ZIP Codes, insurers keep rates high for poor people and members of minority groups, who live disproportionately in congested neighborhoods, consumer groups assert. Moreover, they say, the current system punishes good drivers who happen to live in densely populated areas.

"You move from one side of the street to the other, and suddenly you have to pay more? That's nonsense," Garamendi said. "Rates should be based on how you drive, not where you live."

Chuck Quackenbush, one of Garamendi's predecessors as insurance commissioner and a friend to the industry, adjusted the ranking factors in 1996. Garamendi hopes this year to restore what he sees as the intent of the landmark 1988 law.

Shortly after Garamendi unveiled his plan in December, Joseph prepared to launch an initiative campaign with two goals: to thwart Garamendi's effort and to allow discounts for drivers who maintain continuous insurance coverage, even through different carriers.

Joseph said statistics showed that customers with uninterrupted coverage posed lower accident risks, and that those in congested areas were more likely to file collision and theft claims.

"Having started in this business as an aspiring actuary, I'm sold on the idea that insurance should be cost-based," Joseph said in an interview at Mercury's modest mid-Wilshire headquarters.

Few would disagree that a motorist with a string of fender-benders and a glove box full of speeding tickets should pay higher rates. But according to Joseph, such drivers increasingly avoid being red-flagged by their insurers by going to traffic school and by paying for small mishaps out of their own pockets.

"Driving records have gotten progressively -- please don't use that word, it reminds me of a competitor -- less predictive," he said.

Nor, based on Mercury's experience, is annual mileage significant enough to warrant the No. 2 weighting, he added.

Though he recently dropped his initiative proposal amid industry dissent and threats of a consumer countermeasure nicknamed Son of Proposition 103, analysts say Californians surely have not heard the last from Joseph, who remains committed to correcting what he sees as regulatory excess.

"I've been in the L.A. area since 1948, and it's hard to think of a single example of a California business figure who is the equivalent of George Joseph," said Charles T. Munger, vice chairman of Berkshire Hathaway Inc., the company led by Warren Buffett that owns rival insurer Geico.

"He was nothing when he started," Munger said, "but his combination of genius, diligence, trustworthiness and longevity has created amazing results."

Born in Beckley, W.Va., to a working-class Lebanese immigrant family, Joseph remembers being drawn to the stability, as well as the profit potential, of the insurance business.

"You could put in as many days as you wanted and as many hours as you wanted," said Joseph, who became an independent agent in the 1950s, operating out of an $80-a-month duplex near Olympic Boulevard and La Brea Avenue. "When you grow up in the Depression, one of the things you always want is a lot of work."

He launched Mercury, named for the Roman god of speed and commerce, with five employees and 200 independent agents, slowly building an industry force whose revenue last year reached $3 billion.

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