By Justin Berton, THE SAN FRANCISCO CHRONICLE
UPDATE 6:54 a.m. Proposition 17, auto insurance measure, appeared to be headed for defeat. With 99. 1 percent of the precincts reporting, it was losing by 158,000 votes, or 52-48 percent.
California voters were divided closely on a measure Tuesday that would change state law to allow insurance companies to raise rates on drivers who let their coverage lapse while allowing insurers to award discounts to those who maintain continuous coverage.
Supporters of Proposition 17 said the ballot initiative, sponsored mainly by Mercury Insurance, would lead to more competition and better rates for consumers who take advantage of “continuous coverage” discounts by sticking with insurers.
But opponents said the proposition would unfairly raise fees for drivers who drop their coverage and would erode consumer rights guaranteed under Prop. 103, the landmark insurance reform measure that voters approved in 1988.
Tuesday’s low voter turnout could help the measure pass, opponents said. Early returns showed the measure gaining support in Southern California counties, while Bay Area counties showed opposition.
“We’re still hoping the votes will come in,” said Doug Heller, a spokesman for Stop Prop. 17. “We were outspent $16 million to $1 million, so we moved away from expectations, and just hoped voters received our message.”
The change in the law would allow insurers to penalize drivers who let their insurance lapse, according to opponents. Under Prop. 103, insurance companies are barred from considering motorists’ coverage history when they apply for insurance.
“It’s a positive sign tonight that voters took a careful look at Prop. 17,” said Kathy Fairbanks, a spokeswoman for the Yes on Prop. 17 campaign. “Voters recognized it fixed a flaw in the system and improved the insurance market.”
The controversial proposition was heavily financed by the Mercury Insurance Group, the state’s third-largest insurer, which contributed more than $16 million to the campaign for the measure.
For months, Prop. 17 has been the target of complaints by Consumer Watchdog, the Santa Monica advocacy group that was founded by Harvey Rosenfield, the author of Prop. 103.
Rosenfield has argued that the measure would allow Mercury and other companies to impose surcharges as high as $1,000 on drivers who have not had continuous coverage.
Drivers who are students, low-income and members of the military on duty in other states would be unfairly punished by the new measure, Rosenfield said.
In February, a state report obtained by The Chronicle through California’s Public Records Act, alleged that Mercury may have engaged for years in illegal practices, including deceptive pricing and discrimination against consumers.
In April, The Chronicle reported that Mercury faced hefty fines after another state report alleged it violated state laws “despite agreements with the state to terminate illegal behavior.”
Last month, Consumer Watchdog filed a complaint with the federal Securities and Exchange Commission, charging that Mercury founder and Chairman George Joseph hired his nephew as an actuary for the firm without disclosing the family relationship to investors.
The company has denied any wrongdoing.
E-mail Justin Berton at email@example.com.