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California's Portable Persistency Discounts Heat Up Ahead of November Elections

BESTWIRE

LOS ANGELES, CA -- A consumer advocacy group in California has fired another salvo of public complaints against Mercury Insurance Group, accusing the personal lines insurer of raising automobile insurance rates ahead of an election that will decide the fate of a ballot measure the consumer group said will directly benefit Mercury.

Mercury's 4.3% rate increase will affect roughly 990,000 auto policyholders and would bring in an additional $63 million for the Los Angeles-based company after it goes into effect later this month. Robert Houlihan, Mercury's chief product officer, said the rate increase was designed to help the company respond to the increased loss-cost trends it has seen recently. Houlihan said the rate proposal was submitted over a year ago but that it took "an extended period of time to be approved."

However, Consumer Watchdog said the rate increase was inappropriate because Mercury's founder, George Joseph, has poured millions of dollars into the campaign backing Proposition 33  a "portable persistency" ballot measure that would allow drivers who have earned discounts for maintaining continuous coverage to take those discounts with them if they switch companies.

To date, Joseph has donated $16.4 million to the pro-Prop. 33 campaign, "Yes on Prop. 33."

Prop. 33 is at the center of Consumer Watchdog's fierce media campaign aimed at Joseph, saying that Prop. 33 would unfairly allow insurance companies to raise rates on millions of responsible drivers who have a break in coverage for good reasons, such as illness, financial hardship, or using public transit. Joseph has told Best's News Service that he supports the measure because he thinks it would increase competition among auto insurers and help to drive costs down.

Consumer Watchdog spokeswoman Carmen Balber said that Joseph, now a billionaire after running Mercury for 50 years, is trying to "deceive the public and buy the vote." She added that the rate increase "is more proof that Prop 33 is a deception and its promised discounts are phony."

Houlihan said he disagreed with that description of 91-year-old Joseph because the rate filing was submitted far in advance of the election and had "nothing to do with the Prop. 33 campaign." He said that while Mercury supports the concept of Prop. 33, the company has not donated any money to the Yes on Prop. 33
campaign.

Yes on Prop. 33, which has acknowledged that Joseph is the campaign's primary financial backer, has countered Consumer Watchdog's attacks in television and radio advertisements that tout the benefits of Portable persistency discounts, including exceptions for some drivers whose coverage has lapsed.

As written, Prop. 33 includes exceptions for interruptions caused by military service, loss of employment and children living with their parents. The exceptions would also apply to people who have had lapses of less than 90 days during the past five years. Those who cannot show continuous coverage for five years are eligible for a proportional discount (Best's News Service, June 8, 2011).

The exceptions were added to Prop. 33 after a similar proposal was put before voters in 2010. Mercury General spent $16 million to support Prop. 17, which consumer advocacy groups said was designed to enact a law that would benefit Mercury's bottom line. Consumer Watchdog also criticized Prop. 17 because it did not make exceptions for members of the military or consumers who did not have a car for a period of time.

Earlier this month, Terry McHale, a spokesman for the "Yes to Prop. 33" campaign, said the new proposition factored in those complaints and the campaign brought in lawyers from USAA to help draft the measure (Best's News Service, Oct. 3, 2012).

Joseph has spent the past decade pushing California courts, lawmakers and voters to support portable persistency discounts, which were allowed in the state until 1988, when California adopted a major insurance reform law that gave the state's insurance commissioner rate review authority for auto insurance and barred portable persistency discounts.

The top five writers of private passenger auto insurance in 2011 in California were Farmers Insurance Group, with market share of 14.19%; State Farm Group, with 13.73%; Allstate Insurance Group, with 9.25%; Auto Club Enterprises Insurance Group, with 8.82%; and Mercury General Group, with 8.36%, according to BestLink, A.M. Best's online financial service (www.ambest.com/bestlink).