Californians thought they had settled this already.

But with Proposition 17, an initiative on the June 8 ballot, voters
are being asked once again to set the rules governing auto insurance in
California and how it’s priced.

In reality, this fight has been brewing since 1988, when
Californians passed Proposition 103, the landmark law regulating auto
insurance premiums.

For years, Mercury Insurance Group of Los Angeles, the third largest
auto insurer in the state, has been fighting to roll back a key
provision of the law. Proposition 17 represents its latest try. Mercury
has poured $10 million into Proposition 17, mostly for TV ads, and is
the initiative’s largest financial supporter by far.

Mercury and its allies say Proposition 17, by loosening the rules
governing “good driver” discounts, would increase competition and lower
premiums by as much as $250 a year for the vast majority of motorists.

“When insurance companies compete, consumers win,” said Mike
D’Arelli of the Alliance of Insurance Agents & Brokers, a
Sacramento trade association that’s supporting the initiative.

Opponents, led by Proposition 103 author Harvey Rosenfield, say the
new initiative is a cynical ploy that would actually result in higher
premiums for a certain class of motorists – namely, those who haven’t
been previously insured or who let their coverage lapse.

“It’s a rate increase for a lot of people,” said Rosenfield, founder
of Santa Monica advocacy group Consumer Watchdog.

Car insurance is a $20 billion-a-year business in California, and
the battle over Proposition 17 got predictably nasty before the ink was
dry on the initiative. Backers and opponents sued each over the
wording of the voter information pamphlets. The case essentially ended
in a draw, with Rosenfield being ordered to reword some of his pamphlet
language. Since then, they’ve sniped over alleged campaign finance
violations and assorted other issues.

Adding fuel to the fire: Insurance Commissioner Steve Poizner
accused Mercury last month of systematically overcharging thousands of
Californians for homeowners and auto coverage.

The charges have nothing to do with Proposition 17 but provided an
opening for Rosenfield, who called the case the latest example of
Mercury’s untrustworthiness. Mercury was previously fined $500,000 by
the Department of Insurance over rate-making violations.

Mercury denied the charges and said Poizner was simply seeking
publicity in his campaign for the Republican nomination for governor.

The company, which controls about 10 percent of the car insurance
market in California, declined to make any of its executives available
for comment for this story. Instead, it issued a statement saying
Proposition 17 would benefit “the 80 percent of responsible drivers who
maintain automobile insurance.”

This is Proposition 17 in a nutshell: California law lets insurers
offer loyalty (or “persistency”) discounts to long-term customers.
Mercury wants to give insurers the right to extend these discounts to
other companies’ long-term customers to lure them away.

“You can take your discount with you from carrier A to carrier B,”
D’Arelli said. “We find it kind of dumbfounding that people would be
opposed to making discounts portable.”

But Rosenfield, founder of the Santa Monica advocacy group Consumer
Watchdog, said Proposition 17’s backers aren’t telling the whole story.

Because of the “zero sum” principle governing insurance premiums in
California, giving discounts to one pool of motorists means companies
have to raise rates on the rest, Rosenfield said.

“If somebody gets a discount, other people pay a surcharge,”
Rosenfield said.

Namely, Proposition 17 would punish new drivers and those who
temporarily let their insurance lapse, he said.

Backers of Proposition 17 say Rosenfield is grossly exaggerating the
impact of the zero sum principle. Those who wouldn’t qualify for the
discount would pay higher rates – but they do already. Their rates
wouldn’t go up because of Proposition 17, said D’Arelli.

“They aren’t going to be any worse off,” he said.

Proposition 103 bars insurers from using a motorist’s lack of
previous coverage in determining eligibility for a “good driver”
discount.

But since 1996, the state has allowed insurers to offer a
“persistency” discount to those who maintain continuous coverage – say,
three or more years with the same company. Because of the zero sum
principle, the state has declared it’s illegal to extend the discount
to other companies’ customers to lure them away.

Mercury has tried to extend the discount – with no success. In 2004
the company was slapped down by the state Court of Appeal, which ruled
that Mercury had been illegally doing so.

The court also struck down a law – signed in 2003 by then-Gov. Gray
Davis, with Mercury’s backing – that would have legalized the practice.
The court said the Legislature didn’t have the right to make major
changes in Proposition 103.

With the new initiative, Proposition 17, the company may be taking
its last stab at changing the law.

“Mercury is pursuing the only option left to it,” Rosenfield said.

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