Consumer Group Accuses Mercury of Foul Play in Calif. Rate Filing

Santa Monica-based Consumer Watchdog is challenging a Mercury Insurance request to raise rates for its California auto policyholders by an average of 6 percent, claiming the proposed hike is an attempt to recoup campaign expenses associated with an unsuccessful 2010 ballot initiative bankrolled by the company.

The nonprofit public advocacy group filed a formal challenge to the rate filing this week with state regulators, in addition to requesting a public hearing on the matter. California law prohibits insurers from passing the expense of political contributions on to policyholders.

“It’s a pretty astonishing act of arrogance to spend millions on initiatives to raise insurance premiums for your customers and then try to make those same customers pay for your political attacks,” Consumer Watchdog Executive Director Doug Heller said in a phone interview.

Mercury submitted to the state Department of Insurance earlier this month a rate filing that would cost the company’s customers statewide an estimated $89 million, according to Consumer Watchdog.

Officials with the coverage provider staunchly deny any attempt to write off campaign expenses associated with Proposition 17, an unsuccessful measure on the 2010 ballot.

“Political contributions are not permissible, which is why Mercury has never included these expenses in the company’s rate filings,” Robert Houlihan, the company’s chief product officer, said in an emailed statement. “Any assertions to the contrary are completely false and demonstrate a total lack of understanding of the rate approval process.”

A spokesman for California Department of Insurance would not comment on the rate filing, other than to confirm it had been submitted and is available on the department’s website, which is publicly accessible.

Mercury poured $16 million into the campaign for Proposition 17, which would have changed state law to allow coverage providers to extend “continuous coverage” discounts for drivers who have been consistently insured to those who switch companies. Current state law allows companies to give those discounts, but only to those who are renewing with the same provider.

The initiative would also have allowed insurers to apply a surcharge to the policies of consumers who had let coverage lapse.

Such surcharges are prohibited under Proposition 103, the 1988 legislation that placed wide-ranging regulatory restrictions on the insurance industry in California. They included the requirement that rate increases be approved by state regulators and that premiums be based on a set of factors including driving history and experience—but not whether a consumer had been previously insured.

Consumer Watchdog says the rate filing submitted by Mercury Casualty Company and the California Automobile Insurance Company—both subsidiaries of Mercury General—makes no mention of the millions spent on the 2010 ballot measure.

“Mercury’s rate filing has nothing whatsoever to do with our parent company’s political contributions,” Houlihan said. “Instead, it reflects a changing marketplace and increasing claims and repair costs.”

Heller claims Mercury is playing a shell game by making distinctions between the parent company and its subsidiaries. And he says the company has included in the filing it submitted to regulators loss and premium trends based only on data that makes the best case for a rate increase.

“Mercury is cherry-picking the data in order to justify rates, but that’s not allowed,” he said.

Allegations Come as New Discount Initiative Is Proposed

The rate filing and challenge represent the latest battle in an ongoing war between Mercury and Consumer Watchdog, whose founder, Harvey Rosenfield, authored Proposition 103.

The two sides have squared off recently over an initiative that is targeted for the November 2012 ballot and is similar to last year’s failed measure.

Mercury has not contributed to that ballot drive, but Chairman George Joseph has personally kicked in more than $8 million.

The American Agents Alliance, the group backing the new measure, say it differs in key ways from its predecessor. For example, drivers would still be considered consistently insured if their coverage lapsed for no more than 90 days in the previous five years or due to military service or loss of employment.

Supporters say the initiative would benefit Golden State residents by allowing those who are looking to buy auto insurance online or in person to switch companies without losing out on discounts for continuous coverage. Those discounts would be based on the number of years out of the previous five for which they were covered.

The state attorney general’s office has stated that the initiative would allow insurers to increase costs for those who have let coverage lapse.

Opponents of the proposal say it would punish consumers who have not had vehicle policies for any reason, even if it was because they did not own a vehicle or drive.

Consumer Watchdog contends that the differences between the current initiative and last year’s are superficial and that the initiative would allow insurers to take advantage of drivers who have clean driving records but no continuous coverage history. The nonprofit group claims surcharges would hit low-income residents already struggling to afford coverage particularly hard.

About Matthew Morisset
Matthew Morisset is a proud alumnus of the University of Redlands, where he obtained a degree in English Literature. Utilizing his passion for analysis and writing, Matthew looks for important trends in the auto insurance industry and their implications for consumers and the market as a whole.

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