Mercury Insurance's Deceptive Initiative: An Attack on Consumers, Working Families and the Newly Unemployed

Proposal Will Increase the Number of Uninsured Motorists and Raise Premiums

The deceptively titled "Continuous Coverage Auto Insurance Discount Act" would impose massive premium surcharges on Californians who were previously uninsured. The purpose of the initiative is to gut Proposition 103's anti-discrimination provision that states: "The absence of prior automobile insurance coverage, in and of itself, shall not be a criterion… for automobile rates, premiums, or insurability."

Under this Mercury Insurance-sponsored proposal, people who stop driving and cancel their auto insurance – after being laid off, for example – will face a steep penalty when they need to restart their insurance for a new job.

Who will be harmed by this initiative?

Drivers who have a lapse in auto insurance coverage of more than 90 days in the past five years, whose insurance was canceled after missing a single payment, or who have never purchased auto insurance previously will face penalties in the range of hundreds of dollars when they buy or restart insurance coverage.

Drivers cancel coverage for many reasons: a layoff may cause someone to stop driving in order to cut back on gas and insurance costs, or a family may miss an installment payment during the upheaval of a foreclosure. Senior citizens who stop driving for a time to recover from major surgery may cancel auto insurance to save money while they cannot use their car. Students, stay-athome spouses or others may simply choose not to drive a motor vehicle for a time. All of these people will pay a penalty under this initiative, even if they have an excellent driving record. With unemployment in California at a devastating 12%, people who are forced by their economic circumstances to drop insurance now would now be penalized for restarting their auto insurance coverage as they try to get back on their feet.

What will this do to the premiums of insured drivers in California?

It’s not just those in difficult financial circumstances who will pay more. When newly uninsured drivers face barriers to re-entering the insurance market, all insured drivers in California end up paying more for insurance in the form of higher premiums for “uninsured motorist coverage” and higher taxes to cover uninsured accidents

The Insurance Research Council found that 9% of Americans have canceled or failed to renew their auto insurance. The same insurance industry run organization also projects that the number of uninsured motorists will increase by nearly than 17% by 2010 as a result of the economic downturn.

In addition to making it substantially more expensive for the uninsured to reenter the insurance pool, the Mercury initiative will lead to higher premiums for those who remain insured. When there are more uninsured, the price of “uninsured motorist coverage” goes up for everyone else.

Why does Mercury claim its initiative will offer discounts and not explain that there is a corresponding surcharge for many drivers?

This is a deceptive campaign meant to hide the proposal's inherent attack on families struggling in these tough times. As the Court of Appeal explained, citing the California Department of Insurance’s senior actuary:

"The premiums for policyholders who, because of their characteristics, do not qualify for a particular discount must be surcharged in an amount equal to the total of the discounts given to the policyholders that qualified for the discount." [Emphasis in original] 132 Cal. App. 4th 1352, 1367-1369

The political consultants running Joseph’s latest anti-consumer campaign know that concerned Californians won't stand for an initiative that imposes an insurance surcharge, so they conveniently fail to disclose this fact. That is why the Mercury initiative does not disclose that its language guts a key Proposition 103 protection against the practice of using prior insurance status in the setting of rates and premiums.

Mercury claims that its initiative will put California in line with other states. Is that a good thing?

In 1988, Californians voted for the most sweeping insurance consumer protections in the nation by passing Proposition 103. Since then, California drivers have saved more than $62 billion on auto insurance alone, according to a 2008 study by the Consumer Federation of America. Our rules remain far stronger and more protective than any state in the nation. The Mercury Insurance proposal would send us back to the old discriminatory practice (still allowed in too many states where insurance companies have blocked reforms) of arbitrarily surcharging the most financially vulnerable citizens.

Mercury claims that this will make California a more competitive auto insurance marketplace. In fact, according to an analysis of state auto insurance markets using the Herfindahl-Hirshman Index (HHI), the index used by the U.S. Dep't of Justice to calculate market concentration, California is already the fourth most competitive market in the nation. Mercury notes that states such as New York, Florida and Texas use the proposed surcharge/discount scheme, but fails to acknowledge that those states fall in the bottom half of states when it comes to competitive markets. Additionally, with this alleged discount in place, Floridians spend about 26% more on average than do Californians for auto insurance, New Yorkers spend about 33% more and Texans spend about the same as Californians.

Who is funding the initiative, and why?

This proposed initiative is sponsored by Mercury Insurance, which has long sought to end Prop. 103's protections against insurance discrimination and excessive prices. In the past, Mercury has sponsored legislation to restore “territorial rating,” in which insurance companies base auto premiums primarily upon a motorist’s zip code, a practice outlawed by Proposition 103.

In 2003, Mercury distributed millions of dollars in campaign contributions to elected officials in Sacramento in order to pass legislation (SB 841) that legalized surcharges for those who experienced a lapse in coverage. A California Court of Appeal struck down the law out, writing:

Mercury concedes that “uninsured persons will always be excluded” from the premium discount that Sen. Bill 841’s prior-insurance rating factor accomplishes. This runs contrary to the declared purposes of Proposition 103 and contravenes the voters’ directive against insurance rates that are “excessive, inadequate [or] unfairly discriminatory.” 132 Cal. App. 4th 1352, 1367-1369

The court explained that there is no such thing as a free lunch in insurance and if some drivers get a discount, others must pay a surcharge. The court estimated that if a law, such as the one proposed by Mercury took effect, citizens with a lapse in coverage, or previously uninsured could face a 40% surcharge on auto insurance premiums.

This initiative is an attempt to get around that ruling.

Where can I get more information?

The Campaign For Consumer Rights, which is an affiliate of Consumer Watchdog (the non-profit whose advocates wrote and defend Proposition 103), is joining with other consumer organizations and citizen groups to fight Mercury's deceptive initiative. You can reach us at 310-392-0522 or via e-mail at

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