Insurance CEO Attempts to Undermine Cal. Insurance Commissioner, Rip Off Consumers

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So-Called “Discount” in Legislation Creates Surcharge on Poor and Will Keep All Drivers’ Premiums High

The Senate Insurance Committee will consider legislation today that will override Insurance Commissioner Harry Low and rewrite state law to allow surcharges on good drivers who are applying for insurance for the first time, or after a lapse in coverage. The legislation — AB 1488 (Chavez) — would halt actions by Commissioner Low to stop insurers from the practice, which violates voter-approved Proposition 103. The bill is sponsored by Mercury Insurance, whose CEO George Joseph, showered the insurance committee members with $41,000 — most given in recent weeks — using a loophole in the campaign finance limits law. $25,000 alone went to Sen. Don Perata, a key vote whose constituents in urban Oakland would be particularly punished by the legislation.

Read more about Mercury CEO, George Joseph.

Insurance Commissioner Low, consumer groups and low-income advocates oppose the measure. “This is pure special interest legislation geared to help one insurance company evade the rules in order to increase its profits at the expense of everyone else,” said consumer advocate Doug Heller of the Foundation for Taxpayer and Consumer Rights (FTCR). “Because the Department of Insurance won’t let Mercury cheat consumers, the company is trying to buy legislation that undermines the regulatory decision-making process.”

Commissioner Low Cracks Down on Violations of State Law

California’s system of rate regulation, enacted by the voters through Proposition 103 in 1988, requires insurers to consider a driver’s driving record, annual miles driven and driving experience when companies propose auto insurance rates. The law allows the insurance commissioner to determine other factors that are both relevant and comply with other state laws. Proposition 103 bars the use of a consumers’ prior insurance status as a factor for determining rates to prevent the surcharges proposed by AB 1488. During the Quackenbush era, FTCR went to court to block the use of this factor. The San Francisco Superior Court ordered the Commissioner to reject companies’ use of prior insurance in rate-setting, but then-Commissioner Quackenbush did not enforce the ruling.

Evidence of violations by Mercury and other insurers led Harry Low to conduct a nearly year-long investigation into the practice. This included a public workshop, hearing and written comments from insurance companies (including Mercury), consumer groups and others.

AB1488 will allow Mercury to continue offering customers a discount for switching from another insurance company to his, while increasing rates on those new customers trying to enter the insurance market for the first time or re-enter the market after a lapse in coverage. Many uninsured motorists had once been insured but, particularly in difficult economic times, had a period without coverage and therefore are subject to the surcharge when they try to obtain insurance again. If it is enacted, previously uninsured motorists will pay $208 more per year than previously insured drivers, even if both drivers have good records and are equal in every other way, according to a rate analysis of Mercury, performed by the Department of Insurance.

The high cost of insurance makes it unaffordable for low-income drivers who are trying to comply with California’s mandatory insurance law. AB 1488 will legalize the surcharges and increase the number of uninsured motorists on the road. Since many motorists buy extra “uninsured motorist coverage,” costs for all drivers will increase as a result.

“The bill is merely a marketing tool for Mercury, “The only real beneficiary of this bill will be Mercury and other insurers who choose to discriminate against the poor. Under this bill, California driver will see no change in rates, and efforts by the Department of Insurance to reduce the number of uninsured on the road will be squandered,” said Heller.

Another attempt by George Joseph to circumvent the law

CEO George Joseph‘s efforts to rewrite state law with AB 1488 not his first attempt to undermine Proposition 103 and the will of the voters. Since the passage of the initiative, Mercury and its CEO have contributed more than one million dollars to politicians and sponsored several efforts to undermine the rights of consumers, particularly low-income, urban drivers. A detailed history of Mercury‘s anti-consumer efforts in California is available from FTCR. FTCR noted that Mercury used a loophole in the campaign finance reform initiative, Prop 34, to contribute tens of thousands of dollars to lawmakers. Read more about Mercury CEO, George Joseph.

“This fits right into Joseph’s way of doing things: use a loophole to get around one initiative in order to contribute enough money to undermine another initiative,” said Heller.

Bill Unconstitutional

Because AB 1488 would contradict Proposition 103, it would be struck down in court, according to FTCR. State law does not allow the legislature to amend the initiative except to further the purpose of the initiative. This bill violates Proposition 103‘s rule that “the absence of prior automobile insurance coverage, in and of itself, shall not be a criterion for determining eligibility for a Good Driver Discount policy, or generally for automobile rates, premiums or insurability.”

According to Heller: “Lawmakers should reject this bill because it violates voter-approved Prop. 103 and breaches the separation of powers between the Department of Insurance and the Legislature. But, in addition, the bill should be rejected as it is a policy of discrimination that unfairly burdens those previously uninsured drivers who are trying to comply with the mandatory insurance law.”

The group added that taxpayer dollars should not be wasted on defending a piece of legislation drafted by and for one insurance company.

Click here to read a detailed fact sheet about “Portable Persistency.”


Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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