California Auto Insurance Blog

California’s Alliance of Insurance Agents & Brokers announced its support for a state ballot measure that would change the rules by which automobile insurers could provide discounts to continuously insured drivers.

“Nothing will increase competition in the auto insurance marketplace more than Prop 17,” said Michael D’Arelli, executive director of the Alliance. “We’re wholeheartedly behind it.”

The Proposition 17 campaign, Californians for Fair Auto Insurance Rates, is underwritten by Mercury General, the state’s third-largest auto insurer by market share.

The Continuous Coverage Auto Insurance Discount Act will be on the June 8 primary election ballot. According to CalFAIR, the proposition would allow insurance companies to lower premiums for drivers who have continuously maintained auto insurance coverage, even if they switch to a different insurer. Under current law, an insurer may offer discounts to policyholders who maintain “continuous” coverage only with their company. Insurers would still be required to base their rates primarily on driving safety record, miles driven annually and driving experience.

Opposition, organized by the Campaign for Consumer Rights, the nonprofit, nonpartisan advocacy and campaign affiliate of Consumer Watchdog, see Proposition 17 as a trap. Because those with lapses in payments may be disqualified from any discounts, the initiative would effectively invalidate a component of the state’s Proposition 103 that barred insurance companies from charging customers more for not having had automobile insurance coverage in the past, they maintain. The impact would be disproportionately felt by those who did not need insurance for certain periods — including those without cars for a time, military personnel, students and the temporarily unemployed — plus anyone whose coverage was canceled for even a single late payment, according to Harvey Rosenfield, founder of Consumer Watchdog and the author of Proposition 103 (BestWire, Jan. 20, 2010).

Today, more than 80% of California drivers maintain auto insurance coverage and would qualify for this discount, the Alliance argued. Since the ballot question recently qualified for the ballot, D’Arelli said, “The agency force is going to come in big behind this thing.”

While CalFAIR names support from more than 30 business and consumer groups, it is almost entirely funded by $3.5 million in contributions from Mercury General, according to campaign finance reports.

California Insurance Commissioner Steve Poizner recently said his office will report data on the potential impact of Proposition 17. “Some rates are going to go up and some are going to go down,” he said.

Regulators are in the middle of a new enforcement action against Mercury General, Poizner said. Attempts to reach Poizner’s office for elaboration were unsuccessful.

In 2008, Mercury paid a $250,000 fine, plus $50,000 in costs, to settle alleged claims handling violations. In a February 2009 court filing before an administrative law judge on another matter, department attorneys wrote, “Among department staff, consumer attorneys, and consumer victims of its bad faith, Mercury has a deserved reputation for abusing its customers and intentionally violating the law with arrogance and indifference.”

Attempts to reach Mercury for comment were unsuccessful.

Mercury Insurance Co. (NYSE: MCY), a member of Mercury General Group, currently has a Best’s Financial Strength Rating of A+ (Superior).

The top five writers of private passenger auto insurance in California in 2008, according to BestLink, were: State Farm Group, with a 12.9% market share; Farmers Insurance Group, 11.0%; Mercury General Group, 9.4%; Auto Club Enterprises Insurance Group, 9.0%; and Allstate Insurance Group, 8.4%. BestLink provides online access to A.M. Best’s Global Insurance & Banking Database.

Mercury General stock was trading at $38.18 a share the afternoon of Feb. 12, down 0.29% from the previous close.

(By Sean P. Carr, Washington Correspondent: sean.carr@ambest.com)