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Thursday, 23 August 2012 17:40

Proposition 33’s Price Setting Controversy, Lawsuit to Rewrite Proposition 33 Fails, Joseph Spends $8.3M

A proposition on the November ballot in California is getting a lot of attention from people on both sides of the insurance pricing issue. However, a lawsuit filed by supporters of Proposition 33 in late July over the official wording of the measure has been thrown out by a California Superior Court judge.

Proposition 33 is an initiative aimed at maintaining discount auto insurance for people that switch car insurance companies but still keep continuous coverage. And it happens to be backed by the chairman of Mercury General Corp to the tune of $8.3 million.

Basically, for each year you are with your insurance company and are continuously insured, you get a loyalty discount, but if you switch companies, you don’t. So, say you are with Allstate and you switch to Nationwide; even if you have been continuously insured since you were 16, you will not get a discount for continuous coverage. This proposition would change that.

However, opponents point out that it would do something that would radically change the industry—insurance companies could surcharge people who didn’t have insurance in the past. This has lead to claims of unfairness, with opponents saying the bill would disproportionately affect low-income and new drivers. And this new ability for the insurance companies to determine prices based on previous coverage would alter the current law on guidelines for calculating rates.

“The [failure of the lawsuit] was the campaign’s second failure in two days to convince a court to hide facts about Prop 33 from the Official Ballot Pamphlet sent to all California voters,” according to Consumer Watchdog, which has vehemently opposed the proposition, as well as the similar Prop. 17 on the 2010 ballot.

Prop. 33’s proponents appealed a decision by a Superior Court judge denying the campaign’s effort to edit the language of the Attorney General’s ballot label and title and summary, which read:

“Changes current law to allow insurance companies to set prices based on whether the driver previously carried auto insurance with any insurance company.”
Prop. 33 backers opposed the language because according to them it conveys the idea that the measure would allow insurers to set prices, something that is prohibited by California law.

D’Arelli v. Bowen and Price Setting

The lawsuit filed by Mercury Insurance Company billionaire George Joseph claimed that the title and summary that would be read by voters contains “inaccurate language that is highly likely to prejudice voters against the measure.” 

Included in the suit were the state attorney general and the California secretary of state.

As it stands now, Proposition 103, passed in 1988, sets uniform guidelines for how California auto insurance companies are allowed to calculate rates. Using three sets of mandatory criteria—a driver’s record, the number of years he or she has driven, and the number of miles driven per year—insurance companies determine a person’s premium. In addition, there are 16 optional rating factors. According to a legislative analysis of California’s law, they are the following:

1) Vehicle type, 2) Type of use (pleasure, business, commuting, etc.), 3) Percent use of the vehicle by the rated driver, 4) Number of vehicles, 5) Academic standing, 6) Training courses completed, 7) Vehicle add-ons, 8) Vehicle performance capabilities, 9) Driver’s gender, 10) Marital status, 11) Policy persistency (within the same company), 12) Smoker status, 13) Number of policies, 14) Claim frequency in surrounding area, 15) Claim sizes in surrounding area, 16) Secondary driver characteristics.

But Prop. 33 would add another factor to the 24-year-old set of guidelines governing how rates are calculated, and this is fueling the controversy.

The fact that Prop. 33 will give insurance companies new power to increase premiums for good drivers led the California Democratic Party to vote to oppose Prop. 33 at its recent Executive Board meeting.

Proposition 33 is funded 99% by George Joseph, whose company Mercury Insurance has a “deserved reputation for abusing its customers and intentionally violating the law with arrogance and indifference,” according to the California Department of Insurance. The initiative’s official proponent, Michael D’Arelli, is an executive in a Sacramento insurance lobbying group funded by Joseph.

“George Joseph and Mercury Insurance refuse to accept even the nonpartisan analysis of Prop. 33 and are using his virtually unlimited resources to try and maintain the deceptive marketing of this insurance deregulation initiative,” said consumer advocate Doug Heller with Consumer Watchdog Campaign, which is part of the coalition opposing Prop 33. “Prop 33 is just another insurance industry trick aimed at helping insurance companies at the expense of Californians, and now Joseph is trying to enlist the courts in another of his frequent battles to overcharge consumers.”

Mercury brought a similar, unsuccessful legal challenge to silence the Attorney General and consumer groups opposed to Proposition 17, a nearly identical measure sponsored by Mercury Insurance on the June 2010 ballot. That initiative was defeated by the voters in an upset after the company spent $16 million.

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