Prop. 33 Revives Fight Over Auto Insurance

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For a dozen years, the 91-year-old founder of a leading Los Angeles insurance company and an early disciple of consumer advocate Ralph Nader have been fighting over the right to offer many motorists a new discount.

Now these two adversaries are at it again. This time the fight is over Proposition 33 on California's Nov. 6 ballot, and it's all about price breaks that auto insurers offer to longtime customers.

Since 2001, Mercury General Corp. Chairman George Joseph and Harvey Rosenfield, the author of a landmark 1988 auto insurance initiative, have clashed repeatedly: before the California Department of Insurance, the courts, the Legislature and on the ballot.

At issue is Joseph's persistent and so far unsuccessful push to give drivers — especially those covered by his company's competitors, such as State Farm, Allstate and Farmers — a financial incentive to switch insurers.

Joseph wants to change California insurance law so drivers can get the equivalent of their existing "loyalty" discounts for renewing policies even if they switch insurance companies.

That's unfair and would lead to higher rates for new motorists, young drivers and people who let their coverage lapse for extended periods, Rosenfield contends.

The dispute is a replay of an initiative battle two years ago, but this time, Joseph is practically single-handedly bankrolling the effort. He has personally contributed 99.5% of the $16.2 million raised by Proposition 33's official sponsor, the American Agents Alliance, a trade group of independent insurance agents and brokers, including many who represent Mercury.

It was a close contest in 2010. The initiative, widely criticized for being written mainly to help Mercury, lost 48% to 52%.

Rosenfield and the organization he founded, now known as Consumer Watchdog, argued that Joseph's measure was self-serving and contrary to established law. Worst of all, they said, it would have punished previously uninsured drivers who want to be responsible by complying with the state's mandatory auto insurance law.

The opposition is making the same argument this time around, focusing much of its ire on Joseph, whom they denounce in online videos as "a greedy insurance billionaire." Many newspaper editorial boards that opposed Joseph's Proposition 17 two years ago call this year's ballot measure a retread.

Joseph counters that he wants to help the majority of consumers by lowering their car insurance bills and to generate new business for the company he founded in 1962 with five people and $2 million in capital. Mercury General now is California's fourth-largest private auto insurer, with about 8% of the
private passenger auto liability insurance market.

The new version of the initiative, which has been tweaked so that active-duty military and people who are unemployed for up to 18 months would not be hurt if they drop their insurance coverage temporarily, is about making California's already competitive personal auto insurance market even more so, Joseph said.

"People who are insured today, once 33 passes, will be better off," he said. "They can shop around."

Proposition 33 supporters say that benefit should accrue to the estimated 85% of California drivers who buy insurance.

Other big insurers — with the exception of USAA, which supports the proposition — largely have stayed on the sidelines of the campaign. Neither the California Department of Insurance nor Insurance Commissioner Dave Jones has taken a position on Proposition 33.

What Joseph is trying to do with his initiative is rewrite a small part of Rosenfield's Proposition 103. The law, passed nearly 25 years ago, turned auto insurance in the Golden State into a highly regulated industry, akin to electric utilities.

Creating the new discount would mean amending Proposition 103, which can be done only with an initiative or a two-thirds vote of the Legislature. Rosenfield's law specifically bans using a driver's previously uninsured status as a factor in setting premiums.

Only three main rating factors — a motorist's driving record, annual miles driven and number of years behind the wheel — as well as 16 secondary criteria, can be used to calculate a motorist's insurance bill.

"It's not fair to punish people for not having insurance," Rosenfield said. "This is an important protection that has made insurance as cheap as it possibly can be for people who find it difficult to pay for. And in these days, that's a lot of people."

Insurance is a zero-sum game, according to Rosenfield and most experts, including those at the state Department of Insurance. That means that any new discount given to already insured drivers has to be offset by putting surcharges on other customers.

"It's an actuarial truth," said Mark Rakich, chief consultant at the California State Assembly's Insurance Committee.

But newly insured drivers already are being charged higher premiums than experienced ones, Joseph said. "I don't really see who gets hurt," he said. "I think Harvey's interest is basically he doesn't want 103 amended, no matter what."

Rosenfield said he's mystified by Joseph's determination to do and spend whatever it takes to make his proposed discount legal. "It could be his Moby Dick," he said, referring to the great white whale pursued by a relentless whaler in the classic Herman Melville novel. "He's Capt. Ahab."

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