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Billionaire insurance exec backs initiative to change rate rules

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UPDATE, Jan. 27, 2012: Mercury Insurance provided this response to questions about its record.

The 90-year-old billionaire chairman of Mercury Insurance just won’t give up.

George Joseph gave $8.2 million to put an initiative on the November ballot that supporters say would lower car insurance rates for consumers who maintain continuous coverage. His Los Angeles-based company spent $15.8 million on a similar proposition, derided as a deceptive move to increase rates, that failed in 2010.

The new initiative qualified for the ballot last week, putting a renewed spotlight on Joseph and the company he founded in 1962. Joseph is a longtime conservative political donor, giving $1 million to the California Republican Party in 2010, though his company has given hundreds of thousands of dollars to the state Democratic party as well. Joseph also gave $1 million to a political action committee that spent millions against Dave Jones, a Democrat who won the state post of insurance commissioner in 2010.

Joseph owns just over a third of Mercury's stock. The company has tangled with the state Department of Insurance over the years and currently faces an ongoing enforcement action against it for allegations of violating consumer protections. The company denies any wrongdoing.

In a separate case, the department is opposing Mercury's application to raise homeowners' insurance rates, arguing that the company's rates already are too high, according to senior staff counsel Daniel Goodell. Mercury is also pursuing a 6 percent increase in auto insurance rates, but the department hasn't weighed in yet.

This year's ballot initiative would allow companies to base auto insurance rates on whether a customer had previously been insured. Under tough regulations passed by ballot initiative in 1988, companies can't charge customers more simply because they had been uninsured; they also can't charge less if customers had been insured.

So while consumer advocates say the initiative would let companies jack up rates for the previously uninsured, industry proponents argue it would lead to discounts. The new initiative improves on the old one, supporters say, in that it allows continuous-coverage discounts for those who dropped insurance due to military service or losing a job.

"This initiative is all about creating competition, driving down prices and insuring more folks," said campaign spokeswoman Rachel Hooper. 

Hooper distanced the current initiative, which is sponsored by a trade association of insurance agents, from 2010's Proposition 17. 

"This is not a Mercury initiative," she said. 

Unlike in 2010, Mercury doesn't plan to spend company money on the current initiative campaign, according to a company representative.

Joseph has been trying to change the rules for years. His company sponsored a bill to do so in 2003, but it was struck down in court. Portrayed by his critics as a greedy "Grinch," Hooper said Joseph has been misunderstood.

"They don’t realize that this is a World War II vet," Hooper said. "They don’t realize how hard he’s worked to make this company successful. They don’t realize how much he’s done for California."

Over the last decade, Joseph gave more than $200,000 in federal campaign contributions, the vast majority to Republican candidates and committees. In California, he gave $100,000 to oppose the failed 2006 initiative that would have taxed the wealthy to provide free preschool to 4-year-olds. He spent $200,000 on the successful effort to defeat another 2006 initiative to provide public financing for political candidates and restrict campaign contributions.

The advocacy group Consumer Watchdog is a persistent thorn in Joseph's side. The group's founder wrote the 1988 initiative regulating insurance rates. Executive Director Doug Heller argues that this year's initiative will raise rates and invokes Mercury's record.

"You have a corporation and a chairman who have been found to ignore California law on several occasions, and now they’re asking voters to say yes to a slickly advertised initiative campaign," Heller said.

In 2010, then-Insurance Commissioner Steve Poizner accused Mercury of breaking the law, announcing that "an examination done by the Department of Insurance appears to show that Mercury Insurance has disregarded California's consumer protection statutes and overcharged consumers."

Mercury denied and provided a rebuttal to each allegation, according to the company's Securities and Exchange Commission filings. The department will begin a hearing process before an administrative law judge later this year.

In a separate case, the department accused Mercury of illegally allowing its agents to charge broker fees. The company "does not believe that it has done anything to warrant a monetary penalty," according to its filings. An administrative hearing process is ongoing, according to the department. 

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