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Mercury General using guise of benevolence to assault Prop. 103

The auto insurer's alter ego, Californians for Fair Auto Insurance Rates, is sponsoring a bill that it says will surely lower our insurance bills.


The art of setting automobile insurance rates is incomprehensible to most of us civilians. Liability coverage, comprehensive insurance, assigned risk pools, discounts, surcharges . . . the list goes on. Just try to figure out how your carrier arrived at the figure at the bottom of your itemized bill -- I know nuclear physicists who can't do that math.

So when industry lobbyists cook up a ballot initiative they claim will bring down rates, one's first instinct should be to cry, "Whoa!"

That brings us to the proposed "Continuous Coverage Auto Insurance Discount Act," which its sponsor, Californians for Fair Auto Insurance Rates, says will surely lower our insurance bills.

Never heard of that organization? You may know it by its alter ego, Mercury General Corp., the state's third-largest auto insurer.

Mercury -- excuse me, CalFAIR -- filed the continuous coverage act with the state secretary of state's office two weeks ago. Its strategy is to start collecting signatures for the initiative this fall, in time to get it on the ballot next June.

Since it sometimes takes little more to get a ballot measure approved in this state than concocting a deceptively beguiling advertising pitch and raising the cash to pay an army of signature collectors, and since Mercury has about $4 billion in assets, we can safely assume that we'll be hearing more about this one in the near future.

Therefore, as a public service, I'm going to shake the skeletons out of its closet now.

The proposal is essentially the latest attempt by Mercury to eviscerate Proposition 103. That's the 1988 ballot measure that dramatically reshaped insurance regulation in this state by giving an elected insurance commissioner the authority to approve property and casualty rates before they go into effect.

Auto insurance carriers were a particular target of Proposition 103, because the industry was viewed as especially discriminatory and arbitrary, and because the state's mandatory insurance law gave motorists little choice but to buy coverage.

To bar the redlining of underprivileged neighborhoods, the measure strongly discouraged the use of ZIP Codes in setting rates. Henceforth, the primary factors were to be the driver's safety record, the number of miles driven annually and the driver's years of experience.

Proposition 103 specifically barred insurers from using the absence of a prior policy as a factor in rate-setting for any driver. The concern was that higher premiums based on that factor would discourage uninsured motorists from getting legal.

"That was one of the big problems before 103," says Harvey Rosenfield, the measure's author and the founder of Santa Monica-based "California had absolutely no regulation, and you could be surcharged if you didn't have insurance before." (Is Rosenfield girding for battle over the Continuous Coverage Act? That's like asking whether a lawyer knows the fastest way to the courthouse.)

Nothing in Proposition 103 prevents insurers from giving discounts to their own customers based on the length of time they've remained loyal to the same company. But the insurance department ruled that to offer discounts based on continuous coverage by other companies was in effect the same as imposing a surcharge on all those without such "persistency," to use the industry term. Consequently, the agency outlawed that kind of discount.

In the two decades since the enactment of Proposition 103, California insurers have mounted a persistent effort to chip away at the measure. They've gone to court, showered the odd insurance commissioner with campaign contributions and tried to push revisions through the Legislature.

That in itself should give voters pause, because Proposition 103 is one of the most successful ballot measures ever. From its enactment in 1988 through 2005, according to the Washington-based Consumer Federation of America, auto insurance in California dropped from the third-costliest in the nation to 18th. Average premiums, which had been 30% higher than the national average, declined to dead even.

Nor did this measure deprive auto insurers of reasonable profits -- the profit margin of California insurers from 1997 to 2006 was 10.1%. That ranked 17th in the nation, according to the federation, which got its data from the National Assn. of Insurance Commissioners.

No one's been more determined to rewrite Proposition 103 than Mercury and its founder and chairman, George Joseph. The 87-year-old Joseph is known for detesting Proposition 103, and for not being reluctant to spend millions of dollars to rewrite it. When it comes to Proposition 103, in fact, he's sort of an antimatter Harvey Rosenfield.

One of his specific targets is the ban on no-prior-insurance surcharges. It shouldn't surprise anyone that bills allowing insurers to give persistency discounts got passed in 2002 and 2003 by Mercury's wholly owned subsidiary, the California Legislature.

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