Prop. 103 Changes May Join Ballot

Times Staff Writer

The head of one of California’s biggest auto insurers is pursuing a ballot measure for the November election that would rewrite large portions of Proposition 103, the 1988 initiative that changed the way the state sets auto insurance premiums.

George Joseph, chief executive of Los Angeles-based Mercury General Corp., has hired a cadre of experienced Republican campaign strategists, public relations specialists and attorneys to work on qualifying the proposed ballot measure he submitted to the attorney general’s office last week.

Joseph’s proposals indicate that he wants to make key changes in the law, including how much weight to place on driving records, miles driven and driving experience when setting auto premiums.


That could derail the Department of Insurance’s recent move to lower auto rates for big city dwellers and raise them for suburban and rural drivers. More broadly, it would reduce the state’s regulatory power over the insurance industry.

Publicly at least, other insurers have yet to weigh in. But a number of major insurance companies and trade groups have been helping Joseph draft ballot proposals and may decide to join him.

It’s far from certain that Joseph’s proposal will end up on the ballot, or how it might fare with voters. But consumer activist Harvey Rosenfield, who wrote Proposition 103, said Joseph’s campaign was tantamount to a declaration of war on auto insurance policyholders.

“They put their guns on the table,” said Rosenfield, head of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. He said his group would join with other consumer advocates to protect Proposition 103, which he said has saved policyholders more than $23 billion.

The 17-year-old initiative, passed after a rancorous $80-million electoral battle, remains the nation’s most detailed program for regulating auto insurance rates.

It made the state insurance commissioner an elected rather than appointed official and gave the commissioner power to rule on proposed changes in insurance rates much as the California Public Utilities Commission deals with electricity, natural gas and water rates.


Joseph and other insurance companies working on the proposed initiatives have about two months to decide whether to move forward with a petition-signing campaign, said Rick Clausen, a spokesman for the group. Joseph did not respond to repeated requests for comment.

Joseph’s initiative could easily make it to the ballot in November if he spends enough money on paid signature gatherers, political analysts said. But passing a measure backed by insurance companies and opposed by consumer groups could be problematic, said Dan Schnur, a Republican consultant.

“The amount of money it would take to make voters trust insurance companies is incalculable,” Schnur said. Insurance companies “probably rank right above the tobacco industry and right below used-car salesmen.”

Joseph, who runs California’s third-largest seller of personal auto coverage, is a major political player in Sacramento. Since 1999, he has made more than $3 million in contributions to both Democratic and Republican candidates for legislative seats and statewide offices, as well as to a variety of initiative campaigns. He regularly lobbies for bills aimed at helping him deal with regulatory and legal problems affecting his company.

In 2003, the Legislature passed a Joseph-backed bill that would have allowed insurers to offer special discounts to new customers, a practice outlawed by Proposition 103.

Regulators argued that such discounts discriminated against poor and minority drivers who lived mainly in urban areas and didn’t qualify for the extra savings. Rosenfield’s group challenged the law, which was overturned in September by the California Court of Appeal in Los Angeles.


Joseph’s proposed ballot initiative would restore the discount and speed up the adoption of some proposed cuts in auto premiums.

It also would make it easier for the Legislature to change other parts of Proposition 103, including the factors the law requires insurers to use when calculating auto premiums.

And it would roll back the current system for determining rates to Aug. 1, 2005 -- negating Insurance Commissioner John Garamendi’s recent move to reduce the importance of where a person lives in determining auto premiums. The new rules are expected to shift insurance costs from urban to rural drivers and are opposed by many insurers.

“The initial polling ... finds it to be acceptable to the voters in California,” Joseph told Wall Street analysts in a transcript of an Oct. 31 conference call.

But Garamendi suggested Wednesday that voters wouldn’t be swayed by the new discounts offered by insurers in the proposed initiative.

“They’re a little plum to make something very bad for consumers look good,” Garamendi said.


Proposition 103 has kept California rates low at the same time it encouraged competition and provided companies with fair profits, Garamendi said. Making wholesale changes in the law, he warned, could “unleash an extraordinary war” between consumer groups and insurers that could be even bigger than the 1988 battle.

Rosenfield’s filing of his Proposition 103 measure that year kicked off a now-legendary free-for-all that pitted various factions of the insurance industry against personal injury lawyers, consumer advocates and proponents of no-fault automobile coverage. Rosenfield, whose organization spent only $3 million, emerged as the sole victor when the dust settled after the $80-million campaign.

If Joseph’s proposal makes it to the November ballot, Rosenfield vows to launch a counter-campaign that could include ballot measures to regulate workers’ compensation insurance rates, prohibit insurers from canceling homeowners’ policies after claims have been filed and outlaw the use of consumers’ credit scores in underwriting, he said.

“Some insurers seem to have forgotten the lessons they learned in 1988 when the voters took them to the toolshed,” Rosenfield said.