Best’s News & Research Service - April 16, 2012 12:01 PM (EDT)
Mercury General Founder Continues Quest for Portable Persistency Discounts in California
LOS ANGELES //BestWire// - George Joseph, the 91-year-old founder of Los Angeles-based Mercury General Corp., is at the center of a firestorm in California. At issue is a cause that has become a pet project for Joseph: changing the state's insurance laws to allow automobile insurance consumers to maintain discounts for continuous coverage, even if they switch insurance companies.
Under current California law, only the insurer who wrote a consumer's auto insurance policy can offer discounted rates to well-performing drivers.
Two years ago California voters rejected a Joseph-backed proposition that would have made those changes. Despite that defeat, Joseph is again lending his support to a ballot measure — the 2012 Automobile Insurance Discount Act — which will appear on the ballot for California's November elections (Best's News Service, Jan. 20, 2012). Joseph told Best's News Service he has donated $10 million to this year's ballot measure's campaign, which is being coordinated by the American Agents Alliance.
Joseph is an avid supporter of "portable persistency" because he thinks it would increase competition among auto insurers and help lower premiums. Consumer advocates say it discriminates against people who let their coverage lapse for medical, professional and other reasons.
"This is a business move by an insurance billionaire that would create surcharges on the very people who typically couldn't afford them," said Doug Heller, executive director of Consumer Watchdog.
One ad that Consumer Watchdog has posted on its website features Joseph's face on a $1,000 bill with the caption "Attack of the 1%" — a reference to the nationwide Occupy Wall Street protests.
"They can call me as many names as they want, and there's nothing I can do about it," Joseph said. "And that's fine with me as long as we get this thing done."
Joseph didn't begin his career wanting to sell insurance. He wanted to design guided missiles.
After growing up in the coal mines of West Virginia, Joseph served in the Air Force as a navigator on a Boeing B-17 Flying Fortress for 50 missions during World War II. "To design missiles, I would have had to get a master's degree. But I wanted to work. I was in a hurry," Joseph said. He got a job as an actuary but started selling insurance once he saw how lucrative it could be.
Fifty years later, Joseph still goes to work every day at the insurance company he founded in his home in 1962. Mercury General Corp. initially offered everything from life to auto products. But Joseph shifted the company's focus to auto. Mercury General also writes homeowners, commercial automobile and property, mechanical breakdown, fire and umbrella insurance.
"We began working with consumers and transferring them from one company to another as their driving record got better or worse," Joseph said. "We wanted companies with a wide range of risks. So one company could write nonstandard risk coverage ... but as their driving record got better, we could move them to another company with a preferred rate."
The approach worked, Joseph said, until the passage of Proposition 103 in 1988, which gave the state's insurance commissioner rate review authority for auto insurance and barred portable persistency discounts.
"We were offering something new to consumers that started in California. But after Prop. 103, we moved into Illinois and Georgia because it hurt innovation and our ability to serve our customers in California," Joseph said.
Since then, Mercury General Corp. (NYSE: MCY) has gone public and has assets that exceed $4 billion, according to figures provided by the company.
Almost all of Mercury General Group's subsidiaries currently have a Best's Financial Strength Rating of A+ (Superior).
Joseph has become an even more passionate supporter of portable persistency in recent years, sponsoring a number of efforts to see it come to fruition.
"This is the only way we can create more competition in the market. If a company offers you a 15% discount, but you can't take it with you if you want to change companies, they have you hostage," said Rachel Hooper, a spokeswoman for the American Agents Alliance-backed campaign, who noted 48 states allow portable persistency discounts.
In 2002, Joseph pushed lawmakers to support legislation that would repeal parts of Proposition 103. The bill was vetoed by then-Gov. Gray Davis.
The next year, a similar repeal bill was eventually signed by Davis (Best's News Service, Sept. 25, 2003). Appellate courts in the state ultimately struck down the law after determining it was unconstitutional.
"He lost in the legislature and then he lost in the courts. Now, he's pursuing the only other option, buying a ballot measure for the benefit of his company," Consumer Watchdog's Heller said.
In 2010, a portable persistency ballot measure known as Proposition 17 lost by two percentage points in that election after consumer protection groups and such insurers as USAA Insurance lobbied against it (Best's News Service, July 19, 2010).
Mercury General spent $16 million to support its passage (Best's News Service, June 7, 2010).
The latest portable persistency ballot measure includes exceptions to the continuous-coverage requirement for interruptions caused by military service, loss of employment and children living with their parents. The measure would also apply to people who have had lapses of less than 90 days during the past five years. Those who cannot show continuous coverage for five years are eligible for a proportional discount, according to the language of the measure (Best's News Service, June 8, 2011).
Since adding those exceptions, the ballot measure has been endorsed by USAA and a bipartisan group of three state legislators.
Consumer groups say the new proposal still punishes individuals who have never carried their own coverage before and low-income families that are unable to afford coverage for extended periods of time.
Consumer Watchdog and the Consumer Federation of California have also accused the American Agents Alliance of being "a thinly veiled front" for Mercury General and Joseph.
"It's still him paying all of the money for the campaign, and most of the alliance's brokers are Mercury brokers," said Richard Holober, executive director of the Consumer Federation of California.
Hooper denied the accusation. "We are an independent trade organization with some members who are Mercury brokers but also a lot of people who work with other companies," Hooper said.
The campaign's website says Joseph provided "major funding." He is the only individual donor to be listed by name on the website.
For Joseph, the passage of the portable persistency measure he has supported for so long would cement a legacy of sorts.
"I don't really have any other interests. My kids are all grown and raising families of their own. I play tennis three times a week. But my focus is helping to contribute to the company's growth," Joseph said. "I believe portable persistency is a way to do that while also helping consumers out with lower rates. What's wrong with that?"
(By Jeff Jeffrey, Washington Correspondent: jeff.jeffrey@ambest.com)