SF Standard – Consumer Advocates Allege ‘Collusion’ Is at Heart of California Home Insurance Pullbacks

By Matthew Kupfer, SF STANDARD


In the last several months, multiple insurance companies have stopped selling homeowner policies in California, with some even pulling out of the state entirely.

Now, a consumer advocacy organization is alleging that their actions constitute unlawful collusion—and it’s calling on California Attorney General Rob Bonta to investigate.

In a letter sent Tuesday to Bonta’s office, Consumer Watchdog alleged that insurance companies and their lobbyists coordinated the insurers’ rapid retreat from California. That violates state and federal antitrust laws, the organization said.

Their insurers’ alleged goal? To force California lawmakers to grant them greater freedom to raise rates in the waning days of the legislative session.

“Consumer Watchdog believes that insurance companies are colluding to make insurance unavailable in California to boost the price of insurance and pressure policymakers to change California law to allow insurance companies to charge excessive rates,” the organization said in the letter to Bonta.

The organization said it has learned from insurance industry insiders that this collusion takes place in meetings of industry lobbying organizations the Personal Insurance Federation of California and the American Property Casualty Insurance Association.

In a statement to The Standard, the American Property Casualty Insurance Association criticized Consumer Watchdog’s actions. 

“Everyone understands that California’s insurance market is in a spiraling crisis that requires immediate policy solutions to protect consumer access to the coverage they need,” Jeffrey Brewer, a public affairs division vice president with the association, said in an email. “It’s unfortunate that this organization is advocating against reasonable reforms and instead is pushing for the status quo that hurts consumers.”

The Insurance Federation of California did not respond to a request for comment.

In May, State Farm—the largest home insurer in California—announced it would stop signing new policies in the state. Allstate imposed similar restrictions. Farmers Insurance placed limits on new business and USAA plans to increase wildfire safety demands for all new home policies next year.

Smaller home insurers have pulled out of the state entirely. And Consumer Watchdog says insurance companies have even pulled back on selling new auto policies.   

The letter is the latest salvo in a battle over how to fix a growing insurance crisis that has left Californians with fewer options to insure their homes.

The insurance industry has largely blamed its retreat from California on wildfire risks, climate change, construction costs and difficulties getting rate increases approved by the state regulator. All this has eroded their profits and made it difficult to operate in the state, industry representatives say.

They appear to have Sacramento’s ear.

Last month, Politico reported that Gov. Gavin Newsom, state legislators and the regulator were working on a deal that would attract insurers back to the state by allowing them to raise rates. 

And the industry appears to be pusing hard for such a deal.

The letter to Bonta comes just days after Consumer Watchdog’s president, Jamie Court, surreptitiously recorded an insurance lobbyiston a flight to Sacramento discussing plans to jam a bill benefitting the industry through the Legislature before the end of the current session on Sept. 14.

The text of the bill has not been published publicly. 

Consumer Watchdog and other policyholder advocates have several objections to that plan.

Such a bill, passed through a procedure called “gut and amend,” would prevent advocates from commenting on and potentially influencing the draft legislation, according to Court.

“The governor should not support a backroom process, particularly one with these kinds of consequences for consumers, which are literally billions of dollars on their insurance bill,” he said.

Consumer advocates also say that, by their calculations, the insurance companies are already profitable in California. They believe the pullouts are a political strategy to undermine Proposition 103, passed in 1988.

Written by Consumer Watchdog’s founder, Harvey Rosenfield, the proposition requires insurers to get approval from the regulator, the California Department of Insurance, before raising rates.

The insurers are “using the leverage of pullback throughout the state and threat of further withdrawals to achieve the long-sought goal of getting deregulation and a bailout from Sacramento in the last few weeks of the legislative session,” Rosenfield said.

It’s not a new strategy, said Rosenfield and Court.

In 1988, immediately following the passage of Prop. 103, insurance companies representing nearly 75% of the market restricted business or fully pulled out of California.

Then-Attorney General John Van de Kamp investigated. Two years later, he concluded that “a culture of collusion pervades the insurance industry,” his office said in a 1991 press release.

Rosenfield and Court believe that legislators and Newsom should oppose any last-minute bill giving insurers more leeway to raise rates.

But the insurance industry is “unbelievably powerful” and gives an enormous amount of money to legislators in campaign contributions, Rosenfield said. He believes this is why pro-consumer legislation is often killed in Sacramento.

Insurers want “to improve their profits at the expense of the rest of us,” said Rosenfield. “The attorney general needs to investigate to see what’s going on.”

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