Myth vs. Facts

Myth: The Mercury Insurance initiative will lower insurance premiums for Californians.

Fact: The initiative is written and funded by Mercury Insurance in order to allow the company to raise insurance prices by imposing penalties and surcharges that are illegal now. The initiative could raise premiums for drivers who did not carry auto insurance coverage in the past, even if they didn’t have a car, by hundreds of dollars. And by making auto insurance more expensive, the Mercury Insurance initiative will lead to more people driving uninsured, which will result in premium hikes for the rest of us.

Myth: This initiative only allows auto insurance companies to give discounts.

Fact: There is no free lunch under California insurance laws. Every “discount” must be “balanced” by a surcharge.  Those who do not qualify for the “discount” Mercury Insurance is promising must, by law, pay a surcharge to ensure the company has enough premiums to pay claims. Both the Insurance Commissioner and the courts have determined that Mercury’s proposal will lead to higher premiums for many motorists. And when drivers can’t afford to buy the higher priced insurance, everyone else will make up the difference through higher Uninsured Motorist premiums.

Mercury Insurance Company says it is sponsoring this measure so it can lower its rates. But when Mercury Insurance broke California law and illegally charged Californians the surcharge its is proposing in this measure, it raised customers’ premiums by more than 40%.  Tests of Mercury Insurance online premium quotes in other states, where this surcharge is legal, show price hikes as high as 90%.

Myth: This initiative just fixes an “inconsistency” in California law.

Fact: Mercury Insurance’s initiative targets a key consumer protection in Proposition 103,the insurance reform initiative passed by California voters in 1988. The purpose of that section of California law (Insurance Code Section 1861.02(c)) is to prohibit insurance companies from charging drivers more just because they previously did not have auto insurance coverage, even if they had an excellent safety record.

Mercury Insurance claims that its initiative doesn’t punish any drivers based on their prior insurance coverage and doesn’t undermine Insurance Code Section 1861.02(c). .  In fact, the first line of the Mercury initiative states:  “Notwithstanding section 1861.02(c).“

Mercury Insurance wants voters to think this is a minor tweak to law, but when the California Court of Appeal invalidated a virtually identical law enacted by the Legislature in 2003 (SB 841), the Court ruled that the proposal was not a minor change but in direct conflict with Proposition 103:

Whereas the voters [through Proposition 103] had prohibited insurers from using the absence of prior insurance coverage as a premium criterion to promote fairness for previously uninsured drivers now required to purchase insurance under California law, Sen. Bill 841 authorizes insurers to use that criterion to determine whether a policyholder’s premium will be discounted or surcharged. [Emphasis in original] citation

In 2007 Mercury settled a civil lawsuit after it was found that the company was violating Proposition 103 and illegally surcharging customers by tens of millions of dollars.  Mercury’s proposed initiative would legalize the illegal surcharges for which it was sued.  The insurance giant is not spending millions of dollars in order to lower prices; it could do that without an initiative.

Myth: Setting premiums based on“continuous coverage” is the same as using “persistency” or “loyalty.”

Fact: Mercury is trying to deceive the voters with the same arguments that have been rejected by the California Insurance Commissioner and the courts.

An insurance company is currently allowed to charge customers less after they have been with the company for several years.  This discount for a customer’s “loyalty” is called a “persistency” discount by insurance company actuaries and is associated with the reduced cost of renewing and underwriting long-term customers.  People who have not been with the insurer for long enough, or are new to the company  are not considered “loyal” and are not eligible for the loyalty discount.

The Mercury Insurance initiative has nothing to do with whether a customer has been loyal.  This proposal adds a “rating factor” for setting auto insurance premiums that will raise or lower customers’ premiums based on whether or not they were previously insured by another company or had a break in insurance coverage during the past five years.  This has nothing to do with motorists’ driving records or the costs associated with providing insurance.  Mercury’s initiative targets people who didn’t have or need insurance coverage in the past or who had a lapse for military service, sickness or other reason, and forces them to pay higher premiums

Myth: This initiative is led by a coalition called Cal-FAIR and supported by consumer groups.

Fact: Mercury Insurance Company, a Los Angeles based firm that has consistently broken California’s insurance laws, wrote and is the sole financial supporter of this initiative.

In support of penalizing Mercury for its unlawful practices, the California Department of Insurance has this to say about the company: “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…. Mercury’s lengthy history of serious misconduct, and its attitude – contempt towards and/or abuse of its customers, the Commissioner, its competition, and the Superior Court – are all relevant to determining the penalty needed to best ensure the protection of the public from future violations and wrongdoing.”

As of January 15, 2010, Mercury spent over $4.5 million dollars. Because Mercury has such a bad reputation, a large portion of that money was used to hire public public relations experts to create a phony front group called Cal-FAIR.  Another consultant hired by Mercury is Jim Conran, who operates a fictional group called “Consumers First.” Conran is often paid by insurance companies, utilities, and oil and gas firms to pretend he is a consumer advocate. The corporate public relations firm of Goddard Claussen – well known for working for the insurance industry – is also involved.

Consumer groups that actually fight for consumer rights such as Consumer Watchdog, Consumer Federation of California, Consumer Federation of America and United Policyholders oppose the initiative.

For more information: Contact the Campaign For Consumer Rights. You can reach us at 310-392-0522 ext. 318 or via e-mail at stopmercury@consumerwatchdog.org.

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