California Commissioner Withholds Auto Insurance Rate Approvals, Rattles Market

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By Renée Kiriluk-Hill, BESTWIRE

August 10. 2022

California Insurance Commissioner Ricardo Lara is pumping the brakes on private passenger auto rate hike requests from carriers, including Geico, which he said overcharged policyholders during COVID-19 pandemic shutdowns, according to spokesperson Gabriel Sanchez.

Insurers facing higher claims costs have sought widespread increases but have faced push back in California. Rates appear to be stuck in the state, said Kemper President, Chief Executive Officer and Chairman Joseph Lacher Jr., and he thinks the market will seize up in the near future.

“They’re going to have a social and cultural problem where they’re not going to be able to have people bind or change auto insurance,” Lacher said during a second-quarter earnings call.

For 27 months Lara has “instructed his staff not to open or review rating plans” for private-passenger insurers, American Property Casualty Insurance Association spokeswoman Nicole Mahrt-Ganley said.

That has left dozens of filings in limbo as carriers grapple with skyrocketing costs from inflation and more severe auto accident in California, she said.

“Left to their own devices, insurance companies will charge more, not less,” Sanchez told BestWire. “The California Department of Insurance is reviewing data from private passenger auto insurance companies deemed to have the largest gaps between what was owed and has been refunded to determine how best to close the gap on auto-insurance premiums owed to drivers.

“Private passenger auto insurers, including Geico, overcharged their policyholders during the pandemic and haven’t given enough back to consumers.”

Executives at large auto insurers like Allstate and Liberty Mutual named, or alluded to, California and New York recently when speaking about trouble attaining what they said will be rate adequacy as economic and social inflation and other factors, such as changed driving patterns and supply chain issues, escalate claims severity (BestWire, Aug. 8, 2022).

Absent CDI action on rate requests, auto insurers are “forced to make difficult decisions to manage solvency,” said Mahrt-Ganley. Drivers may soon have difficulty finding coverage, she warned.

In addition to seeking rate hikes, carriers have cut marketing and advertising for personal auto and taken other actions, such as requiring full payment at the start of a policy, to offset losses.

Berkshire Hathaway said Geico’s underwriting expenses decreased 8.7% in the second quarter after the carrier pulled back on advertising and lowered employee-related costs.

Geico has closed its California agencies, limiting more than 2.18 million policyholders to digital channel interactions with the auto insurer, according to a company spokesperson.

Geico also filed a rate request in June in California, seeking a combined 6.9% statewide rate increase for private-passenger auto. The impact would vary across coverages with the greatest impact, 50%, on comprehensive and the second-greatest, 25.1%, on rental reimbursement.

Geico has cited rising loss costs on economic inflation and the ongoing “supply chain crisis” that increased used car values and repair costs and times, which affects rental car costs for insurers.

Consumer Watchdog has filed a petition for hearing and petition to intervene with the CDI, saying an analysis showed that annual premiums would rise an average of $125 if the rate increase is approved.

That would disproportionately hit working-class policyholders, Consumer Watchdog said, because affinity group surcharges mean that drivers working in fields like custodial, construction or food service will pay 25% more than drivers in Geico’s “preferred ‘professional’ occupations,” and almost 11% more than “engineers, auditors and judges.”

Geico’s move to digital-only services will hurt drivers, Consumer Watchdog added, because some vulnerable populations lack internet access.

It took aim at the need for a 6.9% average rate hike, saying Geico needs to present an analysis of trends based on a book that will likely change on the agency closures.

Geico’s most recent approved rate hike in California, in pre-pandemic February 2019, averaged 2.4% in California. It came nearly seven months after an average 6.9% rate increase.

In a variance request based on COVID-19 effects, Geico said in this year’s filing that certain auto coverages have started to exceed pre-pandemic levels.

Prior to the economic shutdowns, Geico said medical and social inflation were rising. “However, the pandemic has led to even further increases in liability severities,” the company said in the rate filing, because of changed driving patterns and costlier treatments as more care is taking place in emergency rooms and hospitals for injuries previously treated outside of a hospital setting.

APCIA Public Affairs Vice President Jeff Brewer said people are exhibiting dangerous post-pandemic-lockdowns driving trends. “People are driving more dangerously than in the past. And people are not wearing their seat belts,” he said. “There are more and more severe crashes.”

The National Highway Traffic Safety Administration estimates that nearly 43,000 people died in motor vehicle traffic crashes last year, a 10.5% increase from the prior year. The projection is the highest number of fatalities since 2005 and the largest annual percentage increase in agency record-keeping.

(By Renée Kiriluk-Hill, associate editor, BestWeek: [email protected])

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