California: A brewing auto insurance coverage crisis

Commissioner Ricardo Lara refuses to approve rate plans that have been on his desk for more than two years. As a result, the market is imbalanced, and providers are pulling out or cutting back — reducing availability and options for consumers.

Because of the large reduction in driving during the COVID-19 pandemic, auto insurers issued billions of dollars in refunds to millions of California motorists.

Today, Californians are driving again at pre-pandemic levels. But unfortunately, the severity of auto accidents has increased, and across the nation, fatalities from car crashes soared by the largest annual increase ever. Repair costs have also gone up due to inflation and supply-chain disruptions.

Yet for the past two years, Commissioner Lara has refused to even review more than four dozen pending auto insurance rate filings requested by the state’s leading insurance providers — neglecting the insurance plans that collectively provide coverage to about 75% of California drivers.

As a result, most California auto insurers are paying out significantly more to cover claims than they receive in premiums. This imbalance ultimately threatens the solvency of providers.

Now, California is on the brink of an auto coverage crisis where choices would be substantially restricted for consumers.

Commissioner Lara’s flat-out refusal to even consider any rate change applications is producing an environment in which California auto insurers cannot continue doing business.

As an independent insurance agent on the front lines, I have already started to see the consequences of Lara’s inaction. Further delay will ultimately lead to an imminent coverage crisis where Californians will have far fewer coverage options to protect their vehicles and families.

In the last few months, we have seen a variety of insurance providers take steps to stop or reduce selling new auto insurance policies due to these unsustainable market pressures. Among the actions they have taken:

•Discontinuing the sale of all personal lines policies in California;

•Eliminating monthly payment plan options;

•Suspending sale of all new auto policies;

•Closing brick-and-mortar offices;

•Insurers are removing their companies from agent quote search engines to reduce their new business;

•Eliminating reinstatement options when a customer’s installment premium is not paid on time.

Commissioner Lara’s inaction is having a direct impact on consumer access to coverage options. So long as he continues to neglect his constitutional responsibility to ensure a healthy insurance market, consumer access to auto coverage will continue to degrade.

It’s past time for the commissioner to do the job he was elected to do. His department must immediately review the extensive data submitted by providers detailing their actual costs for covering consumer claims. It should then authorize rates that are necessary to cover the claims by consumers when they suffer from an insured accident.

Immediate action is necessary to prevent a full-blown coverage crisis, where consumers struggle to find auto insurance policies they need.

Bob Teshima is the president of the Independent Insurance Agents and Brokers of California and principal at George Petersen Insurance Agency.