Consumer Watchdog Saves Policyholders $884.8 Million on Year-End Insurance Rate Increases
Allstate, State Farm Also Agree to End Restrictions on Sales of New Auto Policies
According to Consumer Watchdog's analysis of the rate filings, the auto and homeowners insurance companies were overstating projected losses and inflation trends, causing their proposed rates to be excessive by millions of dollars. In each case, Consumer Watchdog successfully advocated for lower overall rate increases under Prop 103 and prior approval rate regulations that require insurers to justify all rate changes prior to implementation.
"
The
|
Company/Line of 
|
% Rate |
% Rate |
$ Savings |
Date |
Effective |
|
GEICO Auto |
20.8 % |
12.8 % |
356 mill |
|
|
|
Renters/Condo |
28.1 % |
20 % |
199.7 mill |
|
|
|
State Farm Auto |
24.6 % |
21 % |
152 mill |
|
|
|
Pacific Specialty |
6.9 % |
3 % |
6.3 mill |
|
Within 120 |
|
Allstate Auto |
35 % |
30 % |
149.5 mill |
|
|
|
State Farm Rental |
20 % |
11.43 % |
21.5 mill |
|
|
Under Proposition 103, insurance companies are required to obtain the Insurance Commissioner's permission before they can increase premiums. Each insurance company must open its books to public scrutiny and prove that it needs the requested amount before the Commissioner may approve it. And consumers have the independent right to challenge requests that they believe are unjustified. After reviewing the requests, Consumer Watchdog invoked that power to challenge the six companies and worked to reduce the requests to fair levels.
Here is a brief summary of each of the challenges brought by Consumer Watchdog:
State Farm Auto
- Issues Raised by Consumer Watchdog: (Read Petition)
State Farm overstated projected claims payments, resulting in inflated rate increase requests.- The company used a method for projecting Bodily Injury and Uninsured Motorist claims that would have resulted in excessive rates for Bodily Injury and Uninsured Motorist coverages.
State Farm failed to exclude expenses from its rate calculation for institutional advertising (ads designed to improve the company's image rather than selling specific insurance products), as required under state rules.
- Rate Requested by
State Farm : 24.6% - Stipulated Rate: 21% (Read Stipulation)
- Savings:
$152,005,591 - Additional Settlement Terms Achieved:
State Farm agreed to a 6-month moratorium on when future rate increases can go into effect.State Farm agreed to resume online quoting as of 2/26/24.
State Farm Homeowners, Condo Owners, Renters
- Issues Raised by Consumer Watchdog (Read Petition)
State Farm's 2021 net income of$436 million (more than 20% of premium) was inconsistent with its requested rate increase (28.1%).State Farm failed to justify what appeared to be an inflated projection in the rate calculation for catastrophe losses.State Farm made unsupported projections for claims payments for fire losses following an earthquake.State Farm overstated projections of claims payments, which resulted in an inflated rate increase request.State Farm failed to exclude expenses from its rate calculation for institutional advertising (ads designed to improve the company's image rather than selling specific insurance products), as required under state rulesState Farm failed to justify its request for a "variance" from the standard Proposition 103 ratemaking formula.
- Rate Requested by SF: 28.1%
- Stipulated Rate: 20% (20.8% for homeowners, 20% for condo owners, 0% for renters) (Read Stipulation)
- Savings:
$199,747,670 - Additional Settlement Terms Achieved:
- 6-month moratorium on effective dates for future rate increases
State Farm will only use underwriting guidelines that have been publicly filed with CDI and will file complete underwriting guidelines contemporaneously with all rate and rule applications
State Farm Rental Dwelling Owners
- Issues Raised by Consumer Watchdog (Read Petition)
State Farm's 2021 net income of$42 million (more than 20% of premium) was inconsistent with the large rate increase being sought (20%).State Farm made unsupported projections for claims payments for fire losses following an earthquake.State Farm overstated projected claims payments, resulting in an inflated rate increase request.State Farm failed to exclude expenses from its rate calculation for institutional advertising (ads designed to improve the company's image rather than selling specific insurance products), as required under state rules.
- Rate Requested by SF: 20%
- Stipulated Rate: 11.43% (Read Stipulation)
- Savings:
$21,509,293 - Additional Settlement Terms Achieved:
State Farm will only use underwriting guidelines that have been publicly filed with CDI and will file complete underwriting guidelines contemporaneously with all rate and rule applications.
Allstate Auto
- Issues Raised by Consumer Watchdog: (Read Petition)
- Allstate overstated projected claims payments and related costs, resulting in inflated rate increase requests.
- Allstate failed to exclude expenses from its rate calculation for institutional advertising (ads designed to improve the company's image rather than selling specific insurance products), as required under state rules.
- Allstate took unilateral steps to limit access to its auto insurance products, including changes that violate Prop 103's Good Driver requirements.
- Rate Requested by Allstate: 35%
- Stipulated Rate: 30% (Read Stipulation)
- Savings:
$149,524,877 - Additional Settlement Terms Achieved:
- 6-month moratorium on effective dates for future rate increases
- Resuming of online quoting and binding of policies as of
2/7/24 - Conforming of payment plan options to be the same for both new and renewal business, in order to comply with Prop 103 Good Driver requirements.
Pacific Specialty Homeowners
- Issues Raised by Consumer Watchdog (Read Petition)
- Pacific Specialty's underwriting profit of
$14.9 million and claims payments to premium ratio of 34.3% in 2019 was inconsistent with the requested rate increase. - The company's projections using a computer model for fire losses following an earthquake were 250% larger than another similar model, suggesting one of the models was unreliable.
- Pacific Specialty overstated projected claims payments, resulting in an inflated rate increase request.
- Pacific Specialty failed to support its request for a variance from the standard ratemaking formula.
- Pacific Specialty failed to use objective, non-discriminatory underwriting guidelines by refusing to insure properties located in neighborhoods not showing "pride of ownership."
- Pacific Specialty's underwriting profit of
- Rate Requested by Pacific Specialty: 6.9%
- Stipulated Rate: 3% (Read Stipulation)
- Savings:
$6,334,736 - Additional Settlement Term Achieved:
- Removal of underwriting guideline denying coverage for "Properties located in a neighborhood not showing pride of ownership or condemned dwellings."
GEICO Auto
- Issues Raised by Consumer Watchdog (Read Petition)
- GEICO overstated its projected claims payments, resulting in inflated rate increase request.
- GEICO failed to exclude expenses from its rate calculation for institutional advertising (ads designed to improve the company's image rather than selling specific insurance products), as required under state rules.
- GEICO was including excessive expenses in the rate calculation by claiming 25% of its expenses were attributable to sales through agents, even though all GEICO sales offices in
California were closed in 2022 and it now only sells policies directly through in-house employees over the phone or internet. - GEICO's use of education and occupation as rating factors to charge lower income workers more for an auto policy than professionals with advanced degrees violates Prop 103 and the auto rating factor regulations.
- Rate Requested by GEICO: 20.8%
- Stipulated Rate: 12.8% (Read Stipulation)
- Savings:
$356,008,006 - Additional Settlement Terms Achieved:
- 6-month moratorium on effective dates for future rate increases
Consumer Watchdog is presently challenging 2024 homeowners insurance rate increase requests by Allstate (39.6%),
Background
A 2019 study of the nation's insurance laws, the
Founded in 1985, Consumer Watchdog is a non-profit, non-partisan organization.
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SOURCE Consumer Watchdog
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