California agent group says state facing a P&C insurance rate crisis

A group representing independent agents say there is a brewing crisis in the California property & casualty market over rates and the delays getting hikes approved.

Insurance Commissioner Ricardo Lara hosted a webinar with disaffected agents Tuesday but they came away far from mollified by his answers. Agents are experiencing "great difficulty" placing auto and home insurance as insurer "appetite is disappearing with disturbing acceleration," according to the American Agents Alliance.

Headquartered in Sacramento, Calif., the trade association sent Lara a follow-up letter spelling out their concerns over P&C insurance rate requests.

“Agents suspect there is more to the story than we heard from Commissioner Lara in his briefing," said Michael D’Arelli, executive director of the AAA. "Can the [California Department of Insurance] please update its regulations and procedures to shorten the time frames for rate reviews? In this inflationary cost environment, it is unclear how insurers are supposed to remain fully open for business when they are forced to waive their rights to speedy rate review and, in many cases, get forced into an unsatisfactory result."

The CDI press office did not return a phone call or an email by the time of publication.

Poor financial results

Nearly all the largest U.S. personal auto insurers reported poor financial results in recent quarters. Several issues contributed to the poor results, according to an S&P Global Market Intelligence analysis, including increasing accidents and more fatalities, supply chain issues, and more costly repairs due to advanced auto technology.

P&C insurance rates have been skyrocketing in several neighboring states such as Oregon.

Lara is getting criticized from both sides. In March, he approved a $263.7 million rate hike by California's largest insurer, State Farm, one of a flurry of approvals of 2023 auto insurance rate hikes by the top six auto insurers, collectively totaling over $1 billion. The top six companies insure approximately 48% of the state's insured vehicles.

Those rate hikes were bitterly opposed by consumer groups. A study by Consumer Federation of America and Center for Justice and Democracy also concluded that commercial insurers are misrepresenting their actual losses by large percentages.

Under Proposition 103 – passed by California voters in November 1988 – insurance companies must essentially get "prior approval" from the California Department of Insurance before implementing property and casualty insurance rates.

"Insurance companies have the burden to prove their requested rate hikes are justified," said Pamela Pressley, senior attorney for Consumer Watchdog, another consumer group. "But by giving in to insurance company pressure to swiftly approve insurance companies' requested rate hikes, the commissioner is short-circuiting the public scrutiny needed to ensure that excessive rates are not approved."

Magic number: 7

For rate increases of 7% and above – even if the CDI and the insurer reach agreement – a Proposition 103 "intervenor" can demand and receive a rate hearing if the carrier does not agree to a lesser rate increase, the AAA pointed out. When filing a 6.9% request or less, an insurer can reach agreement with the CDI and even if an intervenor objects to the agreement, the CDI can approve the rate increase.

“Adding insult to injury, in the best of times this leads to nine months or more of trial proceedings and delay," D’Arelli said. "If the CDI would develop reasonable rules for intervenor participation that allow the CDI to ensure intervenors could not hold a justified rate request hostage for many months or more, it would undoubtedly remove insurer reluctance to file above 6.9%."

In particular, the AAA advocates for a shortened rate-review process.

In the original language of Proposition 103, insurers were guaranteed approval of rate applications within 60 days unless the insurance commissioner decided to hold an administrative hearing on the matter. The CDI now asks that insurers waive their right to a 60-day answer, "otherwise the CDI will send the matter to rate litigation, which again is a guaranteed bad experience that results in significant delay," the AAA noted.

Proposition 103 was amended to ensure that insurers sent to rate litigation were guaranteed an approval within 180 days, unless extraordinary circumstances exist. The entire process usually means insurers wait many months to get a rate request resolved.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.