Mercury CEO Responds to FTCR’s Allegations

October 13, 2003

Mercury CEO George Joseph disputed the recent allegations made by the Foundation for Taxpayer and Consumer Rights (FTCR), stating that Mercury General Corporation made a series of contributions to Calif. Governor Gray Davis as a payoff for Davis’ signature on SB 841.

The bill, which allows insurers to give discounts to motorists who have maintained insurance coverage, violates Proposition 103, the FTCR claimed. However, Joseph claimed that Proposition 103 “was lawfully amended,” with 2/3 vote from both the Assembly and the Senate.

“Persistency,” when used as a rating criterion for auto insurance premiums, gives discounts to customers who maintain policies as required by law.

SB 841 added the “portability” factor to the persistency discount, allowing customers who have had prior coverage in the past to be eligible for the persistency discount, no matter which company they had their coverage with.

The heart of the dispute goes back to the definition of persistency, which has been a long-standing issue between insurers, consumers, and regulators. Mercury has used persistency discount for the past decade, when it was promulgated to the California Department of Insurance (CDI). However, the FTCR saw the discount as discriminatory to consumers, who failed to maintain insurance.

Former Insurance Commissioner Harry Low partially agreed with the FTCR. Low allowed the discount based on company loyalty. SB 841 is intended to increase competition among insurers by allowing companies to offer the persistency discount to drivers who have a history of automobile coverage with any insurer.

Joseph said FTCR’s allegations are based on the long-standing dispute over the use of persistency.

He said Mercury has made contributions to Davis’ campaign since 1999, but the most recent donations were not in exchange for Davis’ approval of SB 841. The 2/3 vote in each house, necessary for its passage would have been adequate to over ride a gubernatorial veto.

The FTCR will reportedly file a lawsuit to stop the bill, but Joseph said the suit “has no grounds.”

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