Brown Changes Ballot Language on Prop. 17

By Carla Marinucci, THE SAN FRANCISCO CHRONICLE

Under pressure from consumer advocates who say an insurance initiative would raise rates for thousands of state drivers, Attorney General Jerry Brown’s office has submitted new language to describe Proposition 17 on the June ballot.

Brown’s new ballot title and summary now say the measure allows insurance companies to raise auto insurance premiums on drivers based on their coverage history, according to documents submitted to the secretary of state’s office.

The changes came after The Chronicle reported that consumer advocate Harvey Rosenfield said the measure would allow Mercury Insurance Co. and other insurance companies to impose surcharges that are outlawed under Proposition 103, the 1988 landmark car insurance measure approved by voters. Under Prop. 103, insurance companies are barred from considering motorists’ coverage history when they apply for insurance.

“The (new) ballot pamphlet, which is provided to all California voters, is going to be very important in an election where Mercury Insurance will spend millions of dollars to deceive the voters about its Prop. 17,” Rosenfield said Tuesday. “Thanks to a diligent review by the attorney general, voters will know that many Californians will be subject to huge surcharges if Prop. 17 passes.”

Kathy Fairbanks of Californians for Fair Auto Insurance Rates, a coalition of consumer and business groups that includes Mercury, said the measure would allow more competition among insurance companies – and thereby offer lower costs and better services for California drivers.

In October, Rosenfield charged Brown with caving in to pressure from Mercury, which has donated to Brown’s exploratory campaign for governor, when Brown submitted his first ballot summary of Prop. 17.

Rosenfield said Brown’s description of the measure, also known as the “Continuous Coverage Auto Insurance Discount Act,” failed to mention that it could boost premiums for thousands of drivers. He called Brown’s actions “shameful” and urged him to revise the summary for the measure.

James Humes, chief deputy attorney general, defended the wording of the measure, saying “a lot of experts in the field couldn’t agree on what the consequences (of the new measure) would be.”

On Tuesday, the attorney general’s office released new wording for Prop. 17, saying the measure “will allow insurance companies to increase cost of insurance to drivers who do not have a history of continuous insurance coverage.”

E-mail Carla Marinucci at [email protected].

A Sign Of California’s Dysfunction

By John Diaz, THE SAN FRANCISCO CHRONICLE

It’s not that hard for a special interest to get something on the ballot. It just takes money – and a legion of professional petition-gathering organizations stand ready to hit the streets to collect the requisite hundreds of thousands of signatures at 50 cents to $1 a pop.

This “direct democracy” process was a product of Gov. Hiram Johnson’s progressive reforms more than a century ago. The initiative was intended to counterbalance special-interest influence, particularly Southern Pacific Railroad’s. Today, it is a tool of special interests. Just look at the measures on the June ballot. Neither of the statewide initiatives exactly amounts to a populist uprising – unless you believe that millions of Californians suddenly woke up one morning and decided that PG&E should be shielded from municipal takeovers, or the state’s auto insurance laws needed to be loosened so that Mercury Insurance could be more competitive in the field.

So what happened to the initiative that could have led to reform of the initiative process? It stalled for lack of money – and signatures.

Not surprisingly, the petition-gathering industry showed zero interest in helping the drive for a constitutional convention in which citizens would consider a wide range of reforms in the way state government is financed and structured. A revision of the initiative process is high on the list of most reform advocates.

“As a business, I oppose it,” Fred Kimball, owner of one of the state’s leading signature-gathering firms, told the Economist. He acknowledged that he warned the independent operators who supervise the petition gatherers that he would blacklist them if they worked for the measure, the Economist reported.

Contacted by phone last week, Kimball denied that he had threatened to blacklist anyone – but declined to answer further questions.

“Regardless of whether they’re on the street or not on the street, my attorney advises me not to comment on the constitutional convention,” he said.

Repair California, the group that promoted the constitutional convention, claimed to have abundant evidence of intimidation against the network of paid and volunteer petition gatherers it had to patch together. Workers had to be brought in from Arizona and Oregon “at great expense to us,” said John Grubb, a spokesman for Repair California.

As soon as they hit the streets and shopping centers, the constitutional convention crews encountered verbal abuse and, in some cases, were ordered by operators who worked with the established firms to trash the signatures they collected.

“Most of the people who are working on our campaign have been told they will never work in the business again,” Grubb said in an interview shortly before Repair California pulled the plug on its drive for a constitutional convention.

Repair California referred me to three of its gatherers who had experienced such trouble. Two did not respond to phone messages. A third, one of Repair California’s main organizers in Southern California, said the experience was too unsettling to recount.

“I’ve made the decision to get out of the business completely,” he said.

The established firms are not going anywhere. Signature gathering will remain a lucrative enterprise as long as special interests can so easily exploit the initiative process to try to get their way without the scrutiny and compromise of the legislative process.

Some of the signature firms complain privately that they are being made the scapegoats for Repair California’s real problem: lack of money. But that, too, relates to the distortion in our democracy. Who spends the big money in California politics? The special interests who manage to manipulate the current system just fine. The last thing they want is reform.

Good idea gone awry
Here are the biggest problems with California’s century-old initiative process – some of which could have been addressed at a constitutional convention:

Qualification requirements
– It’s nearly impossible to meet the signature threshold within the 150-day time line with volunteers alone. But “if you have the $1.5 million, you’re on the ballot,” said Bob Stern, president of the Center for Governmental Studies.

Expense
– The amount of money being spent for and against initiatives is exploding – $330 million in the 2006 general election alone – as special interests dominate the process.

Confusion
– The text of measures tends to be long, complex or even deceptive. Opponents often cook up counterinitiatives as a tactic to confuse voters.

Errors
– Once it’s printed, it’s printed, even if errors are discovered that undermine the authors’ intent.

Outcome
– Legislators are severely constrained from making even minor amendments to an initiative. Undoing one requires a second trip to the ballot.

(From a Chronicle editorial, July 27, 2008)

John Diaz is The Chronicle’s editorial page editor. You can e-mail him at [email protected].

Literature For Prop. 17 Omits Mercury’s Millions

By Dean Calbreath, THE SAN DIEGO UNION-TRIBUNE

In what is shaping up to be a hotly contested ballot measure, Mercury Insurance — the state’s third-largest auto insurer — is bankrolling an initiative that would allow insurers to base their rates partly on how long drivers have kept up their policies.

Yet, as often happens with ballot propositions, it would be hard to know that judging from the campaign literature on Proposition 17, the California Continuous Coverage Discount Act.

Officially, the proposition is the handiwork of Californians for Fair Auto Insurance Rates or Cal-FAIR, which describes itself as “a growing coalition of consumer advocates, businesses and insurers from across the state.”

But Cal-FAIR is actually the creation of a Sacramento public-affairs firm, Bicker, Castillo & Fairbanks, that has so far earned $200,000 from Mercury for its work on the campaign, part of the insurer’s $3.5 million total contribution to the effort.

Kathy Fairbanks, a partner in the firm, said the name is supposed to reflect the “broad support among consumers groups and businesses” for the proposition. “The objective of Mercury and consumers is exactly the same — to have a competitive insurance market,” she said.

But one of the four “consumers groups” that Cal-FAIR lists as supporting the proposition is a Sacramento consulting firm being paid $5,000 a month for the Proposition 17 campaign. Two are basically one-person operations that have often taken pro-industry stances. And one denies that it even supports the measure.

“That’s really an issue that we’re not willing to get involved with,” said Don Lively, executive director of Citizens Against Regulatory Excess in the East Bay city of Lafayette.

It has become increasingly common for corporations to use groups with innocuous-sounding names to float ballot propositions.

In 2008, for instance, a trio of natural-gas companies owned by Texas billionaire T. Boone Pickens funded Californians for Energy Independence in an unsuccessful ballot initiative to require the state to provide billions of dollars in subsidies to natural-gas-powered vehicles.

Similarly, Pacific Gas and Electric Co. has spent $6.5 million on Proposition 16, coming before voters in June, which would require a two-thirds-majority vote to create a community-funded utility. But the measure’s official backer is the PG&E-backed Californians to Protect Our Right to Vote, which makes no mention of public utilities.

“It’s pretty standard on all sides to set up a committee with an appealing name, designed to make it more likely to attract support,” said Mark Paul, a senior scholar with the New America Foundation, a public-policy institute.

James Smith, a political-science lecturer at San Diego State University, said such committee names are especially useful during the petition-gathering process. Once the proposition is accepted, state law requires major backers to disclose their names and include them names on campaign literature. But there are no such requirements on petitions.

“People sign the petitions when they’re in a hurry, entering the DMV or the supermarket,” Smith said. “They don’t really look at the fine print or think about the fact that somebody’s paying a lot of money to collect the signatures.”

Mercury paid $2.3 million for the petition drive, averaging $3.12 per name compared with the typical $1 to $2.

Fairbanks, however, said that “Californians are sophisticated voters, and as we move though this campaign, it will be very clear that literature and ads are paid for by Mercury. We’re not trying to hide that — and neither are our opponents.”

Proposition 17 would allow insurers to give discounts to drivers based on how long they have been making consistent payments on their insurance, which is currently not allowed in California.

A number of consumer groups, including Consumer Watchdog, Consumers Federation and Consumers Union, oppose the initiative because they fear that it could raise rates for some drivers.

To counter such claims, Cal-FAIR also says Proposition 17 is backed by consumer groups, specifically:

• Consumers First Inc., which is the Sacramento campaign consulting group being paid $5,000 a month for its work on Proposition 17.

• Consumers Coalition of California, based at the home of its president, Virginia Jarrow, in Austin, Texas. Jarrow, whose background is in marketing, describes the group as a “bridge between businesses and consumers” that is funded by grants from entities she declined to disclose.

• California Alliance for Consumer Protection, operated by Sacramento lobbyist Michael Ross from the offices of his firm, MCR Public Affairs and Advocacy. Ross said he funds the alliance himself and does not accept money for endorsements. But the alliance, which has no members, has supported the causes of some MCR clients.

Ross said he is backing Proposition 17 because he was assured that it would create more competition among insurers. But he added that he “didn’t look at all the particulars of the bill” before he signed on. “In every ballot initiative, there’s always somebody who’s hurt,” he said. “The question is whether it’s something that’s good for society as a whole.”

• Citizens Against Regulatory Excess, a small group that focuses on homeowners’ rights and taxes in Contra Costa County. Lively said he has no idea how its name found its way onto Proposition 17 literature. He added that he has been involved on the same side of a couple of regulatory issues as Consumers First. Fairbanks said she has a document with Lively’s signature supporting the proposition.

With the help of the Cal-FAIR name and the imprimatur of its cadre of consumer advocates, Proposition 17 has also gained backing from some more notable groups, ranging from the state Chamber of Commerce to San Diego Tax Fighters. But some of these groups appear to have relied solely on Cal-FAIR’s representations when making their decisions and were not aware that some insurance rates might rise because of the bill.

Mike Culley, who heads the East County Chamber of Commerce, said his group knew little of Mercury’s connection to the bill or its potential to raise prices on some consumers. “If it turns out it’s misleading or it doesn’t make sense, our position may change,” he said.

Contact the author, Dean Calbreath, at: (619) 293-1891; [email protected]

George Joseph is bankrolling Proposition 17 on the June ballot, saying it’s about lowering rates for California drivers. Not everyone agrees.

By Steve Lopez, THE LOS ANGELES TIMES

I spent nearly two hours last Friday in the office of Mercury Insurance Chairman George Joseph. He seemed like a nice guy, but half an hour into it, my head was spinning.

Joseph was explaining why he’s bankrolling Proposition 17, which could affect the insurance premiums paid by millions of Californians. But by the second or third reference to industry terms like “portable persistency,” he might as well have been pulling out my fingernails with pliers.

“You can’t debate it in the newspaper,” Joseph said, conceding that insurance can be dry and complicated stuff.

If you can’t make sense of it in the newspaper, what can we expect from the 30-second TV spots we’ll be assaulted with leading up to the June election?

Joseph told me he had been advised by underlings not to grant my interview request. Not only did he ignore them, he personally met me in the lobby of his building. Joseph, who’s in his 80s but works like a man in his 20s, knew I was a Mercury customer who was thinking of bailing on the company.

“We’d like to keep you if we can,” he said.

My dilemma, as I wrote in last week’s column, is that Mercury’s got low rates but, on occasion, bad press. Mercury has “a lengthy history of serious misconduct,” the state Department of Insurance said recently, including an attitude of “contempt toward and/or abuse of its customers.”

In Wednesday’s column, I too beat up on Mercury for a state investigation that led to a $300,000 fine for seven infractions. But I wronged Joseph by suggesting Prop. 17 would legalize one of the practices for which Mercury was fined: The state had made that accusation but ultimately dropped the charge.

Joseph’s goal was to set me straight on Prop. 17, and he directed me to a knee-high table stacked with reams of documents. Chairs around the table were adjusted low to the ground, as if Joseph has teams of leprechauns on the payroll. It turns out he simply likes being knee deep in paper, and he kept diving in to pull out reports backing his argument.

Prop. 17, he said, is nothing more than an effort to offer lower car insurance rates to Californians. Currently, you can get a loyalty discount for having continuous coverage with one company. Prop. 17 would give you the right to switch from one company to another and still get continuous coverage discount.

Joseph, who started with nothing 50 years ago and turned Mercury into a powerhouse — becoming one of the state’s richest men in the process — readily acknowledges his true motive. He wants more customers, and if discounts become portable, he’s convinced drivers will drop other companies and switch to Mercury because of its cheap rates. And those would be the lowest-risk drivers, statistically speaking, so Joseph stands to benefit handsomely, or he probably wouldn’t be spending millions to promote Prop. 17.

There is nothing wrong with any of that. It’s the American way, and with decades of hard work — and millions of dollars in political donations — George Joseph has all but mastered the American way.

But the ballot argument against Prop. 17, written by Consumer Watchdog, a longtime Mercury Insurance adversary, warns voters not to be fooled.

“Can I read this to you?” I asked Joseph.

He sat calmly as I read the denunciation of 17:

It’s a deceptive scheme because while it would lower rates for some, others would get hit with big surcharges. Military personnel and others who temporarily discontinue coverage because of transfers or other factors would be penalized. The number of uninsured drivers would skyrocket.

Joseph, who’s pretty agile, couldn’t take it after a while. He jumped up and was dashing across his office before I finished.

“I could take that apart, one by one,” he said, retrieving more documents.

The argument against isn’t exactly a pack of lies, Joseph said, but it’s misleading and inaccurate. Yes, some people will pay more than others if 17 passes, he said. But that’s the way it is now, and the primary difference under 17 would be that more drivers would have a chance to get discounts.

In the days since my meeting, I’ve had multiple conversations with Joseph, reps of Consumer Watchdog and others with dogs in this fight. Nobody is backing down.

Consumer Watchdog insists Prop. 17 would, in effect, legalize surcharges that were made illegal by 1988’s Prop. 103, adding yet another way to discriminate against those who don’t fit the insurance industry’s profile of the perfect driver. One result, they argue, would be more uninsured drivers on the road at great cost to everyone.

All bunk, said Joseph, who repeated his argument that Prop. 17 is not about raising rates, it’s about lowering them.

I asked Bob Hunter of the Consumer Federation of America to weigh in.

“The law says you can’t use a lapse in coverage against” consumers, said Hunter. Mercury wants “to get that lapse back in.”

And what will happen if 17 passes?

A majority of drivers would “probably get some small reduction,” he said. Others could get “a very large increase.”

How can Hunter be sure?

“I’m an actuary,” he said. “I do this for a living.”

So will George Joseph keep me as a customer?

Not sure yet. I’m going to see how honest Prop. 17’s ad campaign looks, and then decide whether I can trust the man behind it.

Contact the author at: [email protected]

By Dean Calbreath, THE SAN DIEGO UNION-TRIBUNE

California’s third-largest auto insurance company says it’s just trying to give consumers a break by pushing a ballot initiative that could significantly change the way drivers are charged for their coverage.

But consumer groups say that Proposition 17, which would allow insurers to set their rates partly based on how long drivers have had continuous coverage, could push auto rates higher for a large number of drivers — including military personnel who often let their insurance lapse when they are transferred.

Proposition 17 is proving to be one of the most contentious battles on the June ballot, pitting Mercury Auto Insurance, which has spent $3.5 million on the initiative, against Santa Monica’s Consumer Watchdog, the group that was instrumental in creating 1978’s landmark Proposition 103, which regulated the way insurance is priced in the state.

Consumer Watchdog has accused Mercury of running a deceptive political campaign.

Coby King, senior vice president at Mercury, said his company is trying to clean up some elements of Proposition 103. He said Proposition 17 is meant to “allow companies to be more competitive and drivers to get more competitive pricing.”

Proposition 17 is the culmination of a long-standing battle that Mercury has waged against Proposition 103’s provisions.

Under Proposition 103, insurers are required to base their auto rates largely on drivers’ safety records, the number of miles they drive each year and the length of time they’ve been driving, as well as any other factor that can be “shown scientifically to have a substantial relationship to the risk of loss.”

Insurers are barred from basing rates on how long customers have maintained coverage, though they can offer “loyalty discounts” to long-term policyholders.

Mercury has gone to Sacramento and the courts to try to gain the right to use continuity of insurance payments as a method for setting rates. It helped push a law through the Legislature in 2002, only to see it vetoed by then-Gov. Gray Davis. A second version made it past Davis’ desk, but the courts ruled that it violated Proposition 103.

Mercury said its proposition would be akin to allowing customers to keep their loyalty discounts when they move to another insurer.

But the proposition mentions nothing about transferring loyalty discounts. Instead, it lets insurers offer a discount to any customer who has continuously been insured for five years, with lapses in coverage — including missed payments — totaling no more than 90 days.

“How would a transfer of a loyalty discount even work?” asked Doug Heller, Consumer Watchdog’s executive director. “If one of your customers gets a $100 loyalty discount from a company like State Farm, but another customer gets a discount of $5, what are you going to do?”

Ken Mays, an insurance broker in Oceanside, said he thinks the law would be good for consumers.

“To me, this is all about lower rates and more competition among consumers,” said Mays, who sells policies from Mercury and other companies.

But when an insurance company offers discounts to some customers, it almost always has to raise rates for others, said Darrel Ng, spokesman for the California Department of Insurance. Under state law as well as standard insurance industry practice, rates are considered as a “zero-sum game,” Ng said.

As a result, even though a large number of customers would get lower rates through Proposition 17, many other customers would have to pay higher rates. Critics say that would include new drivers; people who were late on their car payments or temporarily suspended insurance coverage for economic or health reasons; and military personnel who were transferred to out-of-state bases and stopped paying insurance because they no longer used their cars. (The bill does make provisions for overseas transfers.)

In states that allow insurers to take such factors into account, there are sharp divergences in the premiums Mercury charges.

In Texas, for instance, a driver of Toyota Corolla with medium insurance coverage and a record of continuous payments would pay $747 per year. The same driver would pay $991 if he or she let the policy lapse while on military assignment. Someone who previously did not need coverage because he or she did not own a car would pay $1,303.

“That could include people who have temporarily decided to telecommute or use the bus instead of drive,” Heller said. “Or people who have lost their jobs during the recession and sold their cars to make ends meet.”

A recent insurance industry report said 9 percent of Americans have stopped driving during the recession.

It is the perceived threat to veterans that has caused the most consternation among critics. United Services Automobile Association, which specializes in military families, became the first insurer to oppose Proposition 17 last week.

“Military life is substantially different than civilian life,” said Michael Mattoch, chief legislative counsel at USAA. “With all the numbers of times people get moved around the country, there are dozens and dozens of times that somebody might inadvertently let their policies lapse. That doesn’t mean that they’re irresponsible. They’re doing their duty to their country. But they could get pounded by this kind of law.”

Mays, who has a number of Marine clients from Camp Pendleton, said that if military customers or anybody else has problems with being hit with rising rates under Proposition 17, he or she could just seek out a cheaper carrier.

But Heller said that if the past is any indicator, most insurers would shift to using continuity of coverage.

During a brief period in the 1990s when there was some dispute about the meaning of Proposition 103, a number of insurers — including Mercury, Allstate, the Auto Club and Progressive — used it as a criterion for setting rates until the practice was halted by the courts.

Mattoch added that the requirements of military life would make it harder for enlisted personnel to seek out alternate insurance if their rates suddenly shot up. “Quite frankly, they’ve got other priorities right now,” he said.

By Marc Lifsher, THE LOS ANGELES TIMES

SACRAMENTO, CA — For more than two decades, Mercury General Corp. Chairman George Joseph has been sparring with consumer advocate Harvey Rosenfield over California’s landmark automobile insurance law, Proposition 103.

They’ve battled in the courts, the Legislature and the media over complex regulatory questions that affect billions of dollars in premiums paid by the state’s 23.7 million licensed drivers.

Now they’re squaring off over a Mercury Insurance-sponsored initiative on the June ballot. Proposition 17 would rewrite state law to allow insurers to attract new customers with discounts, as long as the drivers have been insured for most of the previous five years.

But in the zero-sum world of insurance, one driver’s discount must be offset by another driver’s surcharge. California insurance law requires companies to have an approved rating plan based on an average premium.

As a result, giving discounts to long-term insured motorists means rates need to be raised sharply for newly insured customers — typically those who were uninsured or let their policies lapse more than 90 days over the previous five years.

The existing law, the Rosenfield-written Proposition 103, allows insurers to offer such discounts only to their own policyholders.

That 1988 initiative was aimed at rolling back rates and creating state oversight of future rate hikes. It also prohibited companies from offering discounts to lure customers from other firms. The ban was aimed at encouraging insurers to sell new policies to the previously uninsured at rates that were not exorbitant.

Combat over the latest initiative escalated last week when the state Department of Insurance released legal documents sought by the San Francisco Chronicle. The documents accused Mercury of illegal practices, such as unfairly denying coverage and charging discriminatory rates to motorists who were not at fault in accidents, were members of the armed forces or worked in certain professions.

In a related filing in an ongoing enforcement action, the Department of Insurance was stinging in its criticism. Mercury has a “lengthy history of serious misconduct” and has an attitude of “contempt toward and/or abuse of its customers, the [insurance] commissioner, its competition and the Superior Court,” the department said.

Mercury, which mostly sells auto and homeowners’ coverage and is the sixth-largest insurer in the state, paid $300,000 to settle the allegations. A spokesman called them “unsubstantiated and not egregious.”

Kathy Fairbanks, a spokeswoman for Californians for Fair Auto Insurance Rates, the campaign committee created by Mercury to promote the initiative, denounced the department’s revelations as an attempt to muddy the Proposition 17 message that 80% of the state’s drivers would qualify for the discount.

Mercury bankrolled the committee with $3.5 million in donations, about 98% of its funding to date. No other insurance company or trade group has joined the effort.

Rosenfield contends that voters need to know that if they pass Proposition 17, they would be rewarding Mercury for its past misconduct.

“We have an insurance company that… was overcharging sponsoring a ballot measure that would legalize the overcharging,” he said.

Mercury and Rosenfield both muster legitimate arguments for or against Proposition 17, said Brian Sullivan, editor of the Auto Insurance Report, a national newsletter in Dana Point.

Insurers have solid actuarial evidence that people who consistently insure their cars file fewer claims, he noted. But society may not want to punish low-income motorists who struggle to comply with the mandatory auto insurance law.

“The question is not whether this is the right thing to do or the wrong thing to do,” Sullivan said. “The real question is, what does the public think is fair?”

Contact the author at: [email protected]