Consumer group alleges home insurer 'collusion' in California market pullback

A consumer group has called on California Attorney General Rob Bonta to investigate whether insurance companies coordinated a massive pullback from covering California homes over the past year to pressure state officials into loosening regulations and allowing higher rates in violation of antitrust laws.

Consumer Watchdog, whose founder Harvey Rosenfield authored the state's 1988 Proposition 103 voter revolt that rolled back insurance rates and required state approval for increases, wrote in a Tuesday letter to Bonta that insurers appear to have engaged in illegal collusion to destabilize the insurance market.

"Insurance companies doing business in California are orchestrating shortages to pressure state officials to boost insurance premiums and authorize a massive bailout of the insurance industry that will likely cost Californians billions," the letter states. "We urge your immediate action to protect California consumers and businesses, and our economy, against further disruption, manipulation, and higher prices."

Rex Frazier, president of the Personal Insurance Federation of California, which represents the insurance industry's interests in Sacramento, called it "an irresponsible and untrue allegation."

Attorney General Rob Bonta's office had no immediate comment on the letter.

Over the past year, three of California's biggest home insurers — Allstate, State Farm and Farmers — have announced they are capping new coverage in the Golden State amid catastrophic losses to fires, floods and other natural disasters. Consumer Watchdog said several other companies have since joined in limiting new policies.

California isn't the only state grappling with home insurance problems — Florida and other Southeast states often in the paths of hurricanes also have seen rates rise sharply and insurers pull out.

Insurers have been upfront about what they see as California's problem. According to the Insurance Information Institute, a New York industry information association, California has seen more acreage burned by wildfires over the last decade, more people living in fire-risk areas, and costs of repairing or replacing damaged homes have risen, leading to higher insured losses.

But the institute says California regulations prevent insurers from factoring those rising risks into premium costs. Those rules require insurers to base rates on historic losses rather than using predictive computer climate models. They also keep insurers from passing on to consumers their rising costs for reinsurance — insurance for insurance companies — which they buy to help them absorb major losses. And, insurers say, the bureaucratic approval process slows and restricts the size of rate increases, so they don't keep pace with rising risk.

Seven of the state's 10 most destructive wildfires struck in the last decade, according to Cal Fire.

Consumer Watchdog disputes that the insurance industry has suffered in California. The group argues in the letter that the state's insurance commissioner has approved on average 95% of the increases sought by insurers between 2021 and 2023, and that insurers received tens of billions of dollars more in premiums than they paid out in claims filed from 1991 to 2021.

Consumer Watchdog said it wouldn't be the first time insurers conspired against the state's consumers. A 1991 antitrust investigation by then-Attorney General John Van de Kamp found dozens of insurers representing three-fourths of the state's auto insurance market had joined a boycott of Prop. 103 to create market chaos and pressure courts into overturning the initiative.

Tuesday's letter asserts that insurers coordinate actions through weekly meetings of their lobbying organizations, the Personal Insurance Federation of California and American Property Casualty Insurance Association. Consumer Watchdog says a confidential witness with industry experience would testify that those meetings included "the sharing of confidential corporate information about planned market withdrawals, proposed rate requests and other activity."

The consumer group also said its president overheard and recorded a veteran industry lobbyist on a flight to the state Capitol in late August bragging to nearby passengers and airline staff about the industry "trying to jam a bill in the last three weeks of the year" to give insurers the regulatory relief they've been seeking.

Patrick Harbison, a spokesman for that lobbyists' firm, Lighthouse Public Affairs, said in an email response that "the housing crisis is an issue that effects everyone" and that "the situation has intensified with the challenge of securing insurance for homes, affecting both homeowners and home builders."

"The urgency is undeniable — Californians deserve solutions that address these issues," Harbison said. "Our team works tirelessly — even answering questions from flight attendants about what we do — advocating for our clients and communities."