Billionaire insurance executive George Joseph has launched a California ballot initiative that would allow insurers to give discounts to long-term customers and, critics contend, punish those who have gone without coverage – despite a voter-approved law banning the latter practice.

“Right now, you as an insurance consumer can get that discount from your current company, but if you wanted to switch, you would not be able to take that discount with you. What this initiative does is allow you to take that discount with you,” said initiative spokeswoman Kathy Fairbanks.  Currently, she added, about four out of five drivers receive a discount for continuous coverage.

Santa Monica-based Consumer Watchdog– a perennial foe of Joseph and his company, Mercury Insurance– filed two ballot initiatives of its own to block Joseph’s initiative, as well as make other changes in state law. The group notes that Joseph’s Mercury Insurance is trying to get voters to approve something that has been rejected in the courts, and that the true impact of the initiative is not to give discounts but to charge more, or deny coverage completely, when applicants have gaps in their coverage.

“It’s an effective way to red-line against customers,” said Consumer Watchdog spokesman Doug Heller. “You can be excessively charged if you didn’t have prior insurance because someone refused to write a policy, or you were ill, or you didn’t drive, or whatever. You can’t look at a person’s prior auto insurance when you’re setting premiums.”

One of Consumer Watchdog’s initiatives would limit the fees that insurers charge customers who pay on the installment plan and block brokers from “double dipping” by charging fees to customers and companies for the same transaction.  The other would prohibit homeowners insurers from “non-renewing” – cutting off coverage – of customers who have filed legitimate claims or inquired about coverage options. The political committee pushing the initiatives is the newly created Campaign for Consumer Rights.

Political disputes in the Capitol over insurance are common. But their price tags are uncommon, as insurers and lawyers do costly battle over airwaves. The multi-pronged fight over Proposition 103, the 1988 ballot initiative that rewrote California’s insurance law, topped $65 million, for example, and ballot fights over tort issues and workers compensation reform have involved tens of millions of dollars.  

The prospect of a high-stakes duel on the 2010 ballot is uncertain. Both sides are circling warily. But the initiatives that not only block the Joseph proposal but add new provisions disliked by insurers and brokers are likely to fuel an expensive feud. “Man, he’s really stirring the pot,” one insurer said of Consumer Watchdog head Harvey Rosenfield.

Political pros question whether insurers are anxious to join Mercury and foot the bill for a high-stakes campaign, or whether Consumer Watchdog’s financial backers, led by the trial bar, are interested in raising the millions of dollars needed to win ballot approval.
 On the insurance side, at least so far, companies are not jumping in. But that will change, Fairbanks said. “We’re actively engaged in building the coalition. We have to qualify first, and then you’ll see (insurance) companies coming in.” Her coalition, called Californians for Fair Insurance Rates, includes local anti-tax groups, chambers of commerce and a group of independent brokers. The consumer group’s initiatives – one of which has received an official title and summary from the attorney general’s office – are not yet on the street.

One wild card is the potential role of the brokers, who have proved aggressive in past campaigns and who are capable of raising vast sums of money. One of the Consumer Watchdog initiatives threatens the brokers’ fees – a basic pocketbook issue that is certain to draw the brokers’ fire.

For insurers, the issue is risk and people who have gone without coverage are riskier to insure than those who don’t.

“There is actuarial evidence that drivers who have maintained continuous coverage are generally less at risk for loss than drivers who have not maintained continuous coverage,” said Sam Sorich of the Association of California Insurance Companies, a trade group that includes auto insurers. “What we’re really talking about is a discount,” added Sorich, whose group has not taken a position on the initiative. “I would imagine there would be a good deal of support for the concept. It is a sound concept, the fact that you get a discount for maintaining continuous coverage with one or more companies.”

All three each need 433,971 valid signatures to qualify for the 2010 ballot. To qualify for June, the signatures would have to be turned in by the end of January.

Californians for Fair Insurance Rates, or CalFAIR, has received just over $1 million – including two payments of $500,000 each from Mercury.  The Consumer Watchdog group, the Campaign for Consumer Rights, has received $100,000 from Consumer Watchdog backers.

None of the three major insurance trade associations in Sacramento – Sorich’s ACIC, the Personal Insurance Federation of  California or the American Insurance Association – has taken a position on the initiatives.