The art of setting automobile insurance rates is incomprehensible to most of us civilians. Liability coverage, comprehensive insurance, assigned risk pools, discounts, surcharges . . . the list goes on. Just try to figure out how your carrier arrived at the figure at the bottom of your itemized bill -- I know nuclear physicists who can't do that math.
So when industry lobbyists cook up a ballot initiative they claim will bring down rates, one's first instinct should be to cry, "Whoa!"
Continuous Coverage Auto Insurance Discount Act," which its sponsor, Californians for Fair Auto Insurance Rates, says will surely lower our insurance bills.
Never heard of that organization? You may know it by its alter ego, Mercury General Corp., the state's third-largest auto insurer.
Mercury -- excuse me, CalFAIR -- filed the continuous coverage act with the state secretary of state's office two weeks ago. Its strategy is to start collecting signatures for the initiative this fall, in time to get it on the ballot next June.
Since it sometimes takes little more to geta ballot measure approved in this state than concocting a deceptively beguiling advertising pitch and raising the cash to pay an army of signature collectors, and since Mercury has about $4 billion in assets, we can safely assume that we'll be hearing more about this one in the near future.
Therefore, as a public service, I'm going to shake the skeletons out of its closet now.
The proposal is essentially the latest attempt by Mercury to eviscerate Proposition 103. That's the 1988 ballot measure that dramatically reshaped insurance regulation in this state by giving an elected insurance commissioner the authority to approve property and casualty rates before they go into effect.
Auto insurance carriers were a particular target of Proposition 103, because the industry was viewed as especially discriminatory and arbitrary, and because the state's mandatory insurance law gave motorists little choice but to buy coverage.
To bar the redlining of underprivileged neighborhoods, the measure strongly discouraged the use of ZIP Codes in setting rates. Henceforth, the primary factors were to be the driver's safety record, the number of miles driven annually and the driver's years of experience.
Proposition 103 specifically barred insurers from using the absence of a prior policy as a factor in rate-setting for any driver. The concern was that higher premiums based on that factor would discourage uninsured motorists from getting legal.
"That was one of the big problems before 103," says Harvey Rosenfield, the measure's author and the founder of Santa Monica-based ConsumerWatchdog.org. "California had absolutely no regulation, and you could be surcharged if you didn't have insurance before." (Is Rosenfield girding for battle over the Continuous Coverage Act? That's like asking whether a lawyer knows the fastest way to the courthouse.)
Nothing in Proposition 103 prevents insurers from giving discounts to their own customers based on the length of time they've remained loyal to the same company. But the insurance department ruled that to offer discounts based on continuous coverage by other companies was in effect the same as imposing a surcharge on all those without such "persistency," to use the industry term. Consequently, the agency outlawed that kind of discount.
In the two decades since the enactment of Proposition 103, California insurers have mounted a persistent effort to chip away at the measure. They've gone to court, showered the odd insurance commissioner with campaign contributions and tried to push revisions through the Legislature.
That in itself should give voters pause, because Proposition 103 is one of the most successful ballot measures ever. From its enactment in 1988 through 2005, according to the Washington-based Consumer Federation of America, auto insurance in California dropped from the third-costliest in the nation to 18th. Average premiums, which had been 30% higher than the national average, declined to dead even.
Nor did this measure deprive auto insurers of reasonable profits -- the profit margin of California insurers from 1997 to 2006 was 10.1%. That ranked 17th in the nation, according to the federation, which got its data from the National Assn. of Insurance Commissioners.
No one's been more determined to rewrite Proposition 103 than Mercury and its founder and chairman, George Joseph. The 87-year-old Joseph is known for detesting Proposition 103, and for not being reluctant to spend millions of dollars to rewrite it. When it comes to Proposition 103, in fact, he's sort of an antimatter Harvey Rosenfield.
One of his specific targets is the ban on no-prior-insurance surcharges. It shouldn't surprise anyone that bills allowing insurers to give persistency discounts got passed in 2002 and 2003 by Mercury's wholly owned subsidiary, the California Legislature.
(State figures show that Mercury made campaign contributions to 70 of the 120 state legislators in 2001-02, and to 91 of them in 2003-04. Incidentally, when Proposition 89, which would have tightened limits on big-money contributions to political candidates and initiative campaigns, appeared on the 2006 ballot, Joseph spent $100,000 to defeat it. I wonder why. Anyway, it lost.)
Then-Gov. Gray Davis vetoed the discount bill in 2002. But the next year, when he was fighting for his political life in the recall election, he signed the measure. Mercury donated at least $175,000 to his campaign that year.
A state court of appeal threw the statute out in 2005 on the grounds that it undercut Proposition 103.
As the court took pains to observe, in actuarial terms a discount offered to one group is functionally identical to surcharging everyone not in that group. In other words, if you're offering a discount to customers who have kept up their insurance with any carrier, you're in effect surcharging anyone who is either a new customer or has had a break in coverage -- such as those who temporarily dropped their coverage because they couldn't afford it, or who had injuries that kept them from driving for a few months.
That's important, because the most common argument you're going to hear in favor of the new initiative (which is almost identical to the 2003 bill) is that it's not about surcharging anyone, it's about "expanding" a "discount."
"We're going to give customers an option they don't have," says Jim Conran, a former state consumer affairs official under Republican Gov. Pete Wilson who is co-chairing the initiative campaign.
You'll also hear that the initiative will make the California insurance market more competitive. It's not clear what the measure's backers mean by this, since the Consumer Federation's data show the California market to be the fourth most competitive in the nation.
Anyway, one should wonder why Mercury, which is already one of the leading insurers in the state, would spend heavily to make its home market more competitive. I'm inclined to think the company has something else on its mind, and I'd bet that giving customers a break isn't it. Forewarned is forearmed: Hang on to your wallets.
Michael Hiltzik's column appears Mondays and Thursdays. Reach him at email@example.com, read previous columns at www.latimes.com/hiltzik and follow @latimeshiltzik on Twitter.