Los Angeles, CA — Insurance Commissioner Ricardo Lara yesterday approved a 4%, $16 million, rate hike on Allstate home insurance policyholders, despite the fact that the company misled regulators at the Department of Insurance about ceasing new homeowners insurance sales in California.
Allstate, the sixth largest home insurance company in California, had sought the rate increase premised on written assurances that it was continuing to sell homeowners policies to new customers. However, Allstate abruptly stopped selling new homeowners insurance policies in November of last year without complying with California law which required it to: (1) publicly file that proposed change with the California Department of Insurance in advance, (2) explain the impact on its rates and (3) await the Insurance Commissioner’s approval.
An August 2018 written opinion by Department of Insurance General Counsel Ken Schnoll states that changes in sales practices directly affect rates, and are therefore subject to prior review and approval by the Commissioner: “Because underwriting rules determine the types of risks to be insured and the coverages to be offered, underwriting rules must be analyzed in connection with the rate review process to evaluate the reasonableness of a proposed rate in relation to the specific risks to be insured and coverages to be offered to determine whether such rates are excessive, inadequate or unfairly discriminatory.” (Ins. Code §1861.05(a).)
The Commissioner’s denial of Consumer Watchdog’s petition for hearing on Allstate’s proposed increase confirms that Allstate’s decision to avoid new customers may have impacted its rates. Yet it still allows Allstate to avoid documenting the impact at this time, and does not require Allstate to await the Commissioner’s approval in the future.
Read the General Counsel opinion.
Consumer Watchdog first discovered Allstate’s unilateral withdrawal last month; the group immediately notified the Department and called on the company to prove that it was still entitled to a rate increase in light of its withdrawal from new business. However, the Insurance Commissioner approved the 4% rate increase today over Consumer Watchdog’s objection. The Department of Insurance did not require Allstate to provide data that would show the rate impact of that decision, or commit to wait for the Commissioner’s review and approval of its rate applications before implementing such changes to its underwriting rules in future.
Allstate is now seeking a new 39.6%, $194 million, homeowners insurance rate increase. Consumer Watchdog is reviewing that application closely.
State Farm also unilaterally withdrew from new sales of homeowners insurance California last month.
“Insurance companies cannot grant themselves back-door rate increases by unilaterally ending sales,” said Harvey Rosenfield, the author of Proposition 103. “Allstate’s actions here were particularly egregious in misleading the agency and Consumer Watchdog. Commissioner Lara should not reward Allstate for secretly reducing access to insurance in California. By not requiring Allstate to show the impact of its withdrawal on rates, the Commissioner is approving a rate increase that has not been justified, a violation of California law.”
Allstate has acknowledged the rate impact of changes in its sales practices in other states, but refuses to do so in California.
How Proposition 103 Protects Californians Through Disclosure and Rate Review
Under Proposition 103, insurance companies that seek to change how much they collect from new and current policyholders must notify the public, open their books, justify the changes and await the approval of the Insurance Commissioner. This is a core protection against arbitrary and unjustified price manipulations.
Prop 103, the Department’s regulations, and a legal opinion by the agency’s General Counsel all confirm that companies can only implement changes to their underwriting rules once they have filed them in a rate application that has been reviewed and approved by the Commissioner. This is because changes to a company’s underwriting rules, including rules about who to insure and the types of coverages to be offered, must be evaluated for rate impact prior to implementation in order to determine whether they will result in rates that are excessive, inadequate or unfairly discriminatory.
Allstate did not follow these required procedures.
Proposition 103 also allows consumer representatives and their actuaries to actively participate in the review of rate applications and object to unjustified changes. Consumer Watchdog has saved Californians over $3.4 billion by challenging excessive rate increases since 2003. Read more about Proposition 103.
