Insurer fined record $27.5 million for illegal customer fees

Auto insurance clients insured through Mercury Insurance Group may be gratified to learn that regulators in one state have fined the property/casualty insurer a record $27.5 million for charging fees it deemed excessive and in violation of a strict separation between independent and captive insurance agents.

According to an L.A. Times report, the California Department of Insurance levied the fine against Mercury as the result of a long-running case involving fees charged to roughly 180,000 automobile transactions made between 1999 and 2004.

The fee matches the amount of money Mercury customers paid out in fees not approved by the Department of Insurance, said Commissioner Dave Jones, and represents the largest fine ever levied on a P/C insurer in California.

“Mercury auto insurance consumers paid $27.5 million in unapproved fees,” Jones said. “While the $27.5 million fine against Mercury is significant, it is commensurate with the amount of money that was unlawfully collected from Mercury policyholders.”

Mercury’s actions represent a breach in a 1988 voter-approved initiative that prohibits auto insurance companies in the state from charging “excessive” rates, and requires that all rate proposals by approved by the insurance commissioner.

At particular dispute is a contention that Mercury charged broker fees even to policies sold by captive agents of the company. The fees ranged from $100 to $150 per policy, Consumer Watchdog found.

Harvey Rosenfield, who helped write the initiative, condemned Mercury for implementing “illegal agent fees and bilk[ing] consumers out of millions of dollars.”

“The $27.5-million fine shows that justice has finally been served against Mercury for years of flagrant violations of law,” he said.

For its part, Mercury lamented the decision, which was proposed by a state administrative law judge after a 15-day hearing.

“We strongly believe that this decision is contrary to California’s rate laws, due process and basic notions of fairness,” the company said in a statement.

by Insurance Business | Jan 13, 2015


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