Calif. watchdog group taking in millions, but may be saving consumers billions

A unique voter-approved law that gives Californians a direct voice in how much insurance companies can charge has benefited the consumer group that wrote the legislation to the tune of more than $21 million since 1988, public records show. The insurance industry would like to get rid of the initiative – called Proposition 103 – but the advocacy group, Consumer Watchdog, contends the measure has saved Californians billions in home and auto insurance premiums.

In a revolt against massive insurance premium increases, voters in 1988 approved the first-of-its-kind Prop 103, forcing insurance companies to get prior approval from the state’s Department of Insurance before implementing property and casualty insurance rate increases. It also made the state insurance commissioner an elected position and provided a process for consumer participation in the setting of insurance rates, allowing consumer "intervenors" witness fees and expenses.

It was billed and expected that perhaps a dozen or more consumer groups and individuals would avail themselves of the intervenor process, but records show that 96% of the fees generated have gone to just one group, Consumer Watchdog.

“Since Consumer Watchdog literally wrote the law, it gives them a continued million-dollar payment almost every year,” said Steven Maviglio, a lobbyist for the American Property Casualty Insurance Association. “That's not the way government is supposed to work; writing a law that benefits only you.”

Maviglio said the law isn’t needed since the now-elected commissioner of insurance would represent the public in rate-setting hearings.

Watchdog law called 'completely unnecessary'

“There's a reason no other state has this law; it's completely unnecessary,” he said. “It is the job of the department to protect the consumer not some self-appointed outside interest. The elected insurance commissioner is directly accountable to consumers.”

Yet numbers do indeed indicate the intervenor measure has slowed premium increases in the state, which have risen below double digits since its implementation. Consumer Watchdog says it alone is responsible for more than $6 billion in premium savings. The Consumer Federation of America says drivers have saved more than $150 billion in auto insurance premiums since Prop 103.

A study by Consumer Watchdog earlier this year showed that between 2002 and 2023, the organization blocked $3.16 billion in auto insurance overcharges, $2.25 billion in unjustified increases in homeowners' insurance, and protected health care providers and small businesses against $99 million in higher premiums. Since then, the savings have exceeded $6 billion,

Due to Consumer Watchdog’s challenges to unjustified rates, insurance companies had to reimburse the organization’s experts and attorneys $11.6 million, or less than 25 cents for every $100 saved for consumers, the study concluded.

“That $6 billion came over the course of the last 22 years from Consumer Watchdog challenges not from other organizations,” said Carmen Balber, executive director of Consumer Watchdog. “There are other organizations that have saved more money.”

High cost of challenges cited

Balber said the high cost of intervening in the complicated rate hearing process has kept more organizations from availing themselves of the opportunity.

“There's nothing in the law or nothing in practice that prohibits any organization from participating and we welcome other organizations from diving in and helping protect consumers from unjust insurance practices and excessive ratings,” she said,

Other organizations such as Consumers Union, the Southern Christian Leadership Council, and the Consumer Federation of California have intervened in rate proceedings, but the commissioner must approve all their expenses, which doesn’t always happen.

“It often takes a very long time to be paid,” Balber said. “Organizations must spend the money up front and not know when, or even if, the department will approve payment.”

The high cost of hiring attorneys, actuaries, underwriters and analysts is beyond the reach of many non-profits, she said. However, she said more could be done to encourage greater participation.

Still, the lack of adequate rate relief and the unique features of Prop 103 are frequently cited as factors in insurance companies abandoning the state or curtailing writing new policies. And the industry seems intent on trying to end the Prop 103 practices.

“Consumer Watchdog is fueling California’s insurance crisis by opposing all of the major reforms proposed by the governor, the insurance commissioner and the Legislature,” said Alan Smith, president of the Western Insurance Agents Association. “This new data shows exactly why. Consumer Watchdog is collecting tens of millions in fees from policyholders from an unnecessary program that exists nowhere else in America and provides no benefits to consumers.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

© Entire contents copyright 2024 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].