Santa Monica, CA — Mercury Insurance seeks to raise California insurance rates by 8.8% for approximately 300,000 homeowners and renters with Mercury policies. If approved, the increase would generate an additional $19 million per year for Mercury. The insurer is seeking the increase even though it paid less than 50¢ in claims for every dollar it charged for homeowners insurance in 2010 and despite reporting a $152 million annual profit from its company-wide insurance sales.
The nonprofit Consumer Watchdog, which has formally challenged Mercury’s proposed increase, believes that California’s seventh largest home insurer cannot justify any rate increase and should be lowering its rates by at least 5.8% instead. Under the voter-approved 1988 insurance reform law, Proposition 103, home, auto and most property-casualty insurance companies must publicly justify their rate changes before they can take effect and members of the public have a right to challenge increases. A public hearing to evaluate the rate hike proposal begins today at the California Department of Insurance in San Francisco. â€¨
“Mercury Insurance wants to soak California homeowners and renters with a substantial and unjustified rate hike by manipulating data and trying to pass on political and other costs that should not be included in customers’ premiums,” said Consumer Watchdog Executive Director Doug Heller. “Californians enacted Proposition 103 to prevent insurance companies from playing games with their data and to make sure the insurance companies are held to account through public hearings like the one we begin today.”
Attempting to justify its substantial increases, Mercury argues that anything less than its requested 8.8% increase would be an unconstitutional limit on its profits, a claim that Consumer Watchdog calls outlandish and greed-driven. Mercury also says that a catastrophic rainstorm that pummeled Southern California in December 2010 should be treated as a regular occurrence. Consumer Watchdog says the 2010 rainstorm losses should be treated as a catastrophe-related loss, which would have less of an impact on premiums in this instance.
In addition to the constitutional claims and improper accounting for the rainstorms, Mercury has failed to exclude from the rate request its political and lobbying costs and sponsorship of the Mercury Insurance Open, a women’s tennis tournament. Under California law, insurers must reduce the administrative costs they pass on to policyholders by deducting those and other non-insurance-related costs. Consumer Watchdog is also challenging a proposed auto insurance rate hike by Mercury in which the company fails to exclude these costs.
In 2009 and 2010, Mercury Insurance spent $16 million on its deceptive but unsuccessful campaign to allegedly give “discounts” to consumers, which Consumer Watchdog and others pointed out, would actually raise millions of drivers’ premiums. In 2011, Mercury’s Chairman George Joseph personally spent $8 million to qualify a virtual repeat of Proposition 17. If the measure qualifies it will be placed on the November 2012 California ballot.
“Mercury Insurance wants its policyholders to pay for its indulgences. Fortunately, the law prevents that and we have a system of public hearings and rate challenges that allows us to stop companies like Mercury from ripping off Californians,” said Heller.
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