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Myth Vs. Fact: Mercury's Deceptive Initiative

Myth: Mercury’s new ballot measure is different. It addresses the major concerns of voters who defeated Prop 17 in 2010.

Fact: The differences between Prop 17, Mercury’s losing 2010 ballot initiative, and this highly similar initiative are superficial. Under current law, a good driver who had insurance in the recent past and a good driver who did not would pay the same premium for new auto insurance, all other things being equal.  If the Mercury measure becomes law, drivers who did not have insurance continuously for the past five years – even if they didn’t need it because they did not have a car – will pay a higher premium than those without a break in coverage. 

The only changes in the new initiative are some exceptions for active military and the temporarily unemployed—an obvious move to eliminate the old initiative’s most sympathetic victims.  In Mercury’s pick-and-choose world, college students, people who chose public transit for a time, the long-term unemployed who return to the work force and others would pay even bigger surcharges for their lapse of insurance.

Adding a new hurdle to buying insurance, especially for people who have struggled financially, only means that more Californians will end up driving without insurance.  That raises costs and concerns for everyone.

Myth: The Mercury Insurance initiative will reduce insurance premiums for Californians.

Fact: Billionaire Mercury Insurance Chairman George Joseph is not funding the initiative so his company can make less money. He would charge people whose insurance had lapsed hundreds of dollars a year more, using that money to give a tiny discount to other policyholders. But an overall hike in auto insurance rates will likely surpass that mini-discount as more people are unable to afford new insurance. Uninsured drivers raise insurance rates for every insured driver.

Myth: This initiative only allows auto insurance companies to give discounts, not raise rates.

Fact: There is no free lunch under California insurance laws. Every “discount” must be balanced by a surcharge.  Those who do not qualify for the “discount” Mercury Insurance is promising must, by law, pay a surcharge equaling the discount to balance accounts. Both the Insurance Commissioner and the courts have determined that Mercury’s proposal will lead to higher premiums for many motorists. When drivers can’t afford to buy the higher priced insurance, everyone else will make up the difference through higher Uninsured Motorist premiums.

Mercury Insurance Company says it is sponsoring this measure so it can lower rates.  But when Mercury Insurance broke California law and illegally charged Californians the surcharge it is proposing in this measure, it raised customers’ premiums by more than 41%.  Tests of Mercury Insurance online premium quotes in other states where such a surcharge is legal show price hikes as high as 200%

Myth: Setting premiums based on “continuous coverage” are the same as using “persistency” or “brand loyalty.”

Fact: Mercury is trying to deceive the voters with the same arguments that have been rejected by the California Insurance Commissioner and the courts.

An insurance company is currently allowed to charge customers less after they have been with the company for a period of time.  This discount for a customer’s “loyalty” is called a “persistency” discount by insurance company actuaries and is associated with the reduced cost of renewing and underwriting long-term customers.  People who have not been with the insurer for long enough or are new to the company are not considered “loyal” and are not eligible for the loyalty discount.

The Mercury Insurance initiative has nothing to do with whether a customer has been loyal.  This proposal adds a “rating factor” for setting auto insurance premiums that will raise or lower customers’ premiums based on whether or not they were previously insured by any company or had a break in insurance coverage during the past five years. This has nothing to do with motorists’ driving records or the costs associated with providing insurance.  Mercury’s initiative targets people who didn’t have or need insurance coverage in the past or who had a lapse for college, residence in a transit-rich city, unemployment, sickness or other reason, and forces them to pay higher premiums.

Myth: This initiative is led by an independent coalition, the Agents Alliance, not Mercury Insurance.

Fact: Mercury Insurance Chairman and founder George Joseph is nearly the sole financial supporter of this initiative. All non-Mercury contributions amount to merely thousands of dollars, and most are from Mercury-allied businesses.

George Joseph has contributed $8,227,126.97 to the initiative.

Abernathy Insurance Agency, a Mercury agent, has contributed $14,000.

Calgard Associates, a Mercury agent, has contributed $10,000.

In addition, the spokesman for Mercury’s lost 2010-ballot measure Proposition 17 runs the “Agents Alliance.”  Mercury insurance agents comprise 70% of its Board of Directors as of the Alliance's last filing.  The initiative’s campaign committee, California Insurance Providers for Competitive Prices and Consumer Discounts, appears to be a fabrication created solely for this measure, as it does not appear to exist independently.

Myth: This initiative just fixes an “inconsistency” in California law.

Fact: Mercury Insurance’s initiative targets a key consumer protection in Proposition 103, the insurance reform initiative passed by California voters in 1988. The purpose of that section of California law (Insurance Code Section 1861.02(c)) is to prohibit insurance companies from charging drivers more just because they previously did not have auto insurance coverage, even if they had an excellent safety record.

Mercury Insurance claims that its initiative doesn’t punish any drivers based on their prior insurance coverage and doesn’t undermine Insurance Code Section 1861.02(c).   In fact, the first line of the Mercury initiative states:  “Notwithstanding section 1861.02(c).

Mercury Insurance wants voters to think this is a minor tweak to the law, but when the California Court of Appeal invalidated a virtually identical law enacted by the Legislature in 2003 (SB 841), the Court ruled that the proposal was not a minor change but posed a direct conflict with Proposition 103:

Whereas the voters [through Proposition 103] had prohibited insurers from using the absence of prior insurance coverage as a premium criterion to promote fairness for previously uninsured drivers now required to purchase insurance under California law, Sen. Bill 841 authorizes insurers to use that criterion to determine whether a policyholder’s premium will be discounted or surcharged. [Emphasis in original]  The Foundation for Taxpayer and Consumer Rights v. Garamendi, B173987 and B176461.

In 2007 Mercury settled a civil lawsuit after it was found violating Proposition 103, illegally surcharging customers by tens of millions of dollars. Mercury’s initiative would legalize exactly the illegal surcharges for which it was sued.  If Mercury actually wanted to reduce auto insurance prices, it could do so without an initiative.

Mercury has, for two decades, tried through the courts, the state Legislature and the ballot to kill or gut major provisions of Proportion 103, including its ban on using a driver’s ZIP code as a primary tool to set rates. Its attacks on parts of the law are always aimed at opening the way to wider assaults on its consumer protections.