Perspectives: USAA Adds Voice to Foes of Insurance Referendum

It's a storytelling axiom that "man bites dog" is more compelling news than "dog bites man." With California's Proposition 17, there's a lot to chew on.

Dog bites man: The Association of California Insurance Companies endorsed the ballot measure to allow insurance companies to lower premiums for drivers who have continuously maintained automobile insurance coverage, even if they switch insurers. To proponents, it's just an extension of loyalty discounts for customers of a single company, which are currently allowed by law.

"It will advance competition and it offers a new discount for consumers," ACIC President Samuel Sorich said.

Man bites dog: To USAA Group, California's ninth-largest car insurer, the ballot question would harm its client base: members of the U.S. military and their family members. USAA joined consumer groups and other Proposition 17 opponents who argued the discounts for some policyholders would lead to higher rates and surcharges for those with a gap in their driving history -- such as military personnel either deployed overseas or living on base with little need for a car. VoteVets.org, an organization for veterans of Iraq and Afghanistan, also criticized the measure.

"Any rating system that does not take into account the unique circumstances military personnel face in maintaining consistent auto insurance does them a disservice and is not acceptable to us," Michael Mattoch, a former Judge Advocate General and current regional governmental advocate and counsel for USAA, said in a statement.

Kathy Fairbanks, spokeswoman for Yes on 17 -- Californians for Fair Auto Insurance Rates, said that criticism is unfair and cited support from the American GI Forum of California and California Republican Veterans of America. She noted the ballot language includes a provision allowing a 90-day grace period for those who canceled their insurance, including military personnel, and also would allow insurers to extend that period at their discretion.

Yes on 17 is underwritten by Mercury General, the state's third-largest automobile insurer by market share. While Yes on 17 claims support from a list of nearly 50 business and community organizations, it is almost entirely financed by $3.5 million given by Mercury General -- 98% of contributions received to date.

Taking on soldiers, sailors and airmen was probably not in Mercury's campaign plan. But the company is no stranger to taking heat from consumer groups and insurance regulators.

In a February 2009 filing before an administrative law judge, Department of Insurance attorneys described Mercury in language more often seen in political campaigns, street brawls and family gatherings than in dry court proceedings. "Among department staff, consumer attorneys, and consumer victims of its bad faith, Mercury has a deserved reputation for abusing its customers and intentionally violating the law with arrogance and indifference," they wrote.

Other critics have been equally harsh. According to the Consumer Federation of California, "The Mercury Insurance initiative will legalize a surcharge that is currently illegal, but that Mercury imposed anyhow until it was stopped by the courts five years ago."

Sorich concedes the Mercury connection complicates the case for Proposition 17. "It is their initiative. But it's really a side issue, what Mercury has done or not done," he said.

Proposition 17 is on the June 8 primary election ballot. Representatives of Mercury have not responded to requests for comment.

(By Sean P. Carr, Washington Correspondent: sean.carr@ambest.com)