Donations Flow Before Key Vote
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home / insurance / in the media

The Los Angeles Times
Aug 07, 2002

by Virginia Ellis, Times Staff Writer

Donations Flow Before Key Vote

Senate: Mercury Insurance lavishes funds on panel members who will decide firm's bill.
SACRAMENTO -- One of California's largest automobile insurers showered a Senate committee with campaign contributions just days before it was to consider a bill the company is pushing to overturn a decision by Insurance Commissioner Harry Low.

Mercury Insurance Co., a Los Angeles-based insurer, is sponsoring legislation that would allow it to continue to offer discounts to customers who maintained insurance coverage over the years.   
   
The bill would strike down proposed regulations by Low that outlaw the discount because it requires customers who have not been previously insured to pay higher rates. Under Low's plan, customers would only receive a "loyalty discount," which means they would get a break if they stay with the same company but not if they switch to another insurer.

The Senate Insurance Committee has life and death power over the legislation, and seven of its nine members received thousands of dollars in contributions from Mercury, with several donations coming just before the bill's first hearing on June 26.

The committee is expected to pass the measure in a final vote today despite a plea from Low that it would undermine his authority to regulate insurance rates. Mercury's general counsel dismissed the timing of the contributions as nothing unusual.

"Mercury has been an active participant in the political life of this state for many, many years," said Douglas Hallett. "I think the fact of the matter is that Mercury regularly contributes to a number of people in public life."

California, unlike some other states, does not ban contributions to lawmakers while legislation is under consideration. In 2000, voters approved Proposition 34 after they were promised that it would put $3,000 limits on contributions to legislators.

But the Fair Political Practices Commission, an ethics watchdog group that is appointed by politicians, created a loophole that allows veteran lawmakers to collect political donations in unlimited amounts. Among the committee members accepting donations from Mercury was Sen. Don Perata (D-Alameda), who reported receiving $25,000 on June 19.

Recent campaign disclosure reports show other longtime legislators have received large contributions as well. Assembly Speaker Herb Wesson (D-Culver City) collected $30,000 from the Recording Industry of America; Senate Republican Leader Jim Brulte (R-Rancho Cucamonga), $10,000 from the Pechanga Band of Mission Indians; and Senate President Pro Tem John L. Burton (D-San Francisco), $25,000 from the Wine Institute Fund, to name only a few of the large contributions.

In Mercury's case, Burton said it was not the company's generosity that made its bill so attractive to senators but its compelling arguments on the issue.

"Why the hell should you be locked into one insurance company if another will give you a better rate?" he asked.

Low acknowledged in a letter to the committee that many drivers would benefit from the discount but he said it would come at the expense of newly insured motorists, some of whom are the working poor struggling to comply with California's mandatory automobile insurance law.

"While allowing a ... discount when shopping for insurance coverage, on its face, may appear to be a competitive, consumer friendly concept," he wrote, "the bill ... will have the unintended deleterious effect of significantly driving up rates for those entering the insurance market."

Role of Prop. 103

Low, a former judge, said it would also violate Proposition 103, which prohibits a lack of prior insurance from being a factor in determining premiums that should be paid by a particular driver. The initiative, approved by voters in 1988, set stringent regulations on insurance, including rules that require the commissioner to determine which factors can be used in setting rates.

Mercury's Hallett disagreed, saying Low misinterpreted the initiative. He said the wording in that part of Proposition 103 was modeled after laws in other states, all of which had been interpreted to mean that companies could provide a discount to customers who maintained insurance coverage even if they switched carriers.

"To the extent that we are seeking to provide positive incentive for people to comply with the mandatory insurance law," he said, "we should not be putting them in a position where they're economically disadvantaged if they choose to move from Allstate to Mercury."

He said motorists who present less risk should be rewarded financially and insurance company data show that those who have coverage over extended periods of time have fewer losses than other drivers.

Harvey Rosenfield, the author of Proposition 103, sided with Low, saying the commissioner's reading of the initiative was correct. He said the effect of Mercury's legislation would be to impose a surcharge on newly insured motorists.

"Insurance is a zero-sum game," he said. "You get a benefit, someone else pays more. Department of Insurance data show that in exchange for a benefit of $38 to the previously insured, people trying to enter the market will pay $66 more for a Mercury policy--a $104 difference."

He said the legislation does violate Proposition 103, which was specifically designed to protect the previously uninsured.



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