Insurers say California inaction threatens auto policies

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SACRAMENTO, Calif. (AP) — Major U.S. insurance companies and associations say California is risking a crisis in the nation’s largest auto insurance market by refusing to approve any rate increases for more than two years, since the start of the coronavirus pandemic.

Companies are already cutting spending and saying they cannot continue to operate at a loss while Insurance Commissioner Ricardo Lara delays rate cases filed by companies representing three-quarters of the California market. Allstate, Geico, Kemper, Liberty Mutual and State Farm all said they paid more in claims than they collected in California premiums in the first half of the year, despite being profitable as recently as the last year.

It’s part of Lara’s effort to compensate consumers he says were overcharged during the early months of the pandemic, when traffic all but disappeared after California imposed the nation’s first stay-at-home order. His office could not say how much it thinks insurers still owe, but advocacy group Consumer Watchdog puts the amount at more than $3 billion.

“The data we collected directly from the insurance companies themselves shows that many of them have not fully refunded the premiums they have overcharged consumers,” said Deputy Insurance Commissioner Michael Soller. Part of the department’s effort is to “fix things for consumers who continue to be overcharged on premiums during the pandemic.”

But a state appeals court ruled last year that Lara could not impose “retroactive rates and refunds.” The state Supreme Court denied the review, and while Lara’s office interprets the ruling narrowly, insurers say it’s a blanket ban on her attempts to demand further reimbursements. .

The dispute comes as Lara is running for re-election against Republican Robert Howell, who is unlikely to pose a serious threat to Lara’s re-election.

“The commissioner is an elected official and he tries to serve his constituents in a way that does not favor market forces,” said David Russell, professor of insurance and finance at California State University, Northridge. “But if you remove tariffs, you’re going to have availability issues.”

It’s similar to the dilemma companies face insuring homes in wildfire-prone areas or along the Florida coast, he said.

“There is an obvious and avoidable market crisis looming,” Lara warned in April, three associations representing insurers who underwrite more than 90% of auto insurance premiums in California.

“Automobile insurers cannot operate in California indefinitely without the ability to collect adequate rates,” the National Association of Mutual Insurance Companies, Personal Insurance Federation of California and American Property Casualty Insurance Association (APCIA) said in their joint letter. “Criticism of decisions made during the pandemic, including claims by some that insurers should have provided more relief to customers, do not justify ignoring the financial realities of the present.”

Since pandemic restrictions eased, traffic has returned to almost what it was in 2019 before the coronavirus hit, while drivers have become less safe so crashes, injuries and fatalities have increased, said Bob Passmore, APCIA vice president and auto adjuster. Deaths fell slightly last spring for the first time in two years, but any drop in those payments is being offset by shortages in the supply chain and rapidly rising inflation.

Insurers should repay their pandemic windfall, but Lara has not come up with the necessary regulations for them to do so, said Consumer Watchdog founder Harvey Rosenfield.

“It’s actually not clear to us exactly what the commissioner is doing other than…he’s not approving rate increases,” Rosenfield said. “So while I don’t think any company should get a rate increase until they repay what they illegally took from California motorists, it has to be done through a process. formal.”

Thirty-eight filings for rate increases are now substantiated, as well as five new requests filed this month.

Since then, Geico closed its three dozen brick-and-mortar storefronts in California in August and stopped allowing drivers to purchase insurance over the phone, though it still allows online sales.

Progressive President and CEO Tricia Griffith said on an earnings call last month that the company was slowing growth in California due to the moratorium, while Allstate stopped using independent agents and attempted to limit customers’ payment options until it was blocked. so by Lara’s office.

“Having them do things here in California that indicate withdrawal as much as they can is an indication of an unhealthy market, and we think it’s directly related to the fact that the insurance commissioner hasn’t not reviewed a rate filing in 2 1/2 years,” said Denni Ritter, APCIA vice president for state government relations.

Massachusetts and New York also stopped considering requests for rate increases during the pandemic but have now started again, insurers said.

Insurers “are becoming less and less willing to write new business” in California because of the moratorium, Joseph Lacher Jr., president, CEO and president of Kemper said in a conference call last month.

“Within a relatively short time, my personal belief is that we’re going to start to see markets crash,” he said. “And I just hope the commissioner doesn’t push it that far because it’s going to take a long time to restart it.”

Rosenfield doesn’t think the industry is in trouble, but he fears Lara’s inaction could give insurers reason to challenge it in court.

“If there’s one tactic the insurance industry has perfected, it’s trying to blackmail the public by threatening to walk away,” he said.

Rosenfield thinks companies are taking the opportunity to select their best customers to increase profits by making it harder for high-risk consumers to buy insurance. But he blamed Lara for “sort of precipitating a crisis” by not using his regulatory authority to block what he sees as discriminatory behavior by insurers.

Insurers collectively reimbursed California drivers $2.4 billion during the pandemic, though Lara calculated the rebates were well below what consumers were owed. The state has 137 licensed insurance companies that collected more than $17 billion in private passenger auto insurance premiums in 2020, Soller said.

“California people today have many choices when it comes to auto insurance in this highly competitive market and we will make sure that is the case,” Soller said.

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