Low Income Consumers Most Severely Impacted by Occupation-Based Premium Surcharges
Los Angeles, CA – Insurance Commissioner Lara’s approval last week of a $263.7 million rate hike by California’s largest insurer, State Farm, marks the latest in a flurry of approvals of unjustified 2023 auto insurance rate hikes by the top 6 auto insurers, collectively totaling over $1 billion. These companies insure approximately 48% of the state’s insured vehicles. Hardest hit by the rate hikes are low-income workers who, under some auto insurers’ job-based rating plans approved by Lara, will pay up to 25% more than professionals with college degrees.
After months of inaction on the proposed rate hikes, Commissioner Lara rushed to approve them over the objections of Consumer Watchdog who challenged the proposed rates as unjustified under voter-approved Proposition 103. According to Consumer Watchdog’s analysis of the rate filings, auto insurance companies are overstating projected losses and inflation trends, causing their proposed rates to be excessive. A recent study by Consumer Federation of America and Center for Justice and Democracy also concludes that commercial insurers are misrepresenting their actual losses by large percentages. See CFA and CJ&D study here.
“The Commissioner needs to use his voter-enacted authority under Proposition 103 to protect California consumers from unnecessary rate increases and discriminatory overcharges, especially low-income workers hit hardest by the pandemic,” stated Pamela Pressley, Consumer Watchdog Senior Attorney. “Under voter-enacted Prop 103, insurance companies have the burden to prove their requested rate hikes are justified. But by giving in to insurance company pressure to swiftly approve insurance companies’ requested rate hikes, the Commissioner is short-circuiting the public scrutiny needed to ensure that excessive rates are not approved.”
“These massive premiums increases have been approved even though most auto insurance companies have failed to fully repay their customers for windfall overcharges during the pandemic lockdown, when people dramatically reduced their driving and accidents, and insurance claims dropped. Consumer Watchdog has estimated that motorists are owed billions in additional refunds.” Read Consumer Watchdog analysis here.
The $1 Billion in auto insurance rate hikes approved by Lara over the last few months, which will take effect in 2023, include:
|Company||$ Amount of Rate Increase||No. of Policy|
Average Increase Per Policy
|Date Approved||Proposed Effective Date|
|State Farm||$263.7 million||3.7 million||$71||3/15/23||5/15/23|
|Auto Club (So Cal)||$202 million||1.44 million||$140||2/18/23||4/15/23|
|Mercury||$132 million||1.6 million||$80 (per vehicle)||1/31/23||unknown|
|Farmers||$167.8 million||1.7 million||$98||2/13/23||12/1/23|
|GEICO||$268 million||2.1 million||$125||12/7/22||1/20/23|
State Farm: Under State Farm’s approved $263.7 million overall 6.9% rate hike, 3.7 million policyholders face an average rate increase of $71 per policyholder. According to Consumer Watchdog’s analysis finding the company overstated its projected losses, this increase was more than double the amount that should have been approved, resulting in $136.8 million in overcharges to consumers. See Consumer Watchdog’s petition for hearing here.
Interinsurance Exchange of the Auto Club (Auto Club of Southern California): Under the Auto Club’s approved $202 million overall 6.9% increase, 1.44 million policyholders, who collectively own 2.68 million vehicles insured by the company, face an average annual premium increase of $75 per insured vehicle ($140 per policy). According to Consumer Watchdog’s analysis finding the company overstated its projected losses, this increase was more than seven times the amount that should have been approved, resulting in $175.6 million in overcharges to consumers. The worst of Auto Club’s rate increase will fall on low-income drivers who don’t have one of the professional occupations for which Auto Club gives a premium discount. These grocery clerks, hotel workers, janitors, home healthcare aides, and other drivers without white-collar jobs will be surcharged, paying up to $167 more in annual premiums per policy than drivers in one of Auto Club’s preferred occupation groups.
Mercury: Under Mercury’s approved $132 million overall 6.9% rate hike, 1.6 million insured vehicles will face an average increase of $80 per insured vehicle. Under Mercury’s 5-tiered rating system based on education and occupation, most working-class policyholders—from waiters to cashiers, construction workers to call center operators—will pay up to about 20% more than drivers with professional occupations and advanced degrees such as engineers with a bachelor’s degree or higher education level. The Department prematurely approved Mercury’s and its subsidiary Cal Auto’s rate filings over Consumer Watchdog’s objections to the companies’ discriminatory job-based surcharges and inflated loss projections and without allowing Consumer Watchdog to complete its full analysis.
GEICO: Under GEICO’s approved $268 million overall 6.9% rate hike, 2.1 million policyholders will face an average $125 annual premium increase. Drivers working in fields like custodial, construction, or food service will pay 25% higher premiums than drivers in GEICO’s preferred “professional” occupations, including lobbyists, architects, and financial analysts. They will pay almost 11% more than engineers, auditors, and judges. GEICO filed for another 6.9% rate hike last month that is still pending approval. Contrary to Prop 103 and its own long-standing procedures, the Department failed to require GEICO to turn over most of the information requested by Consumer Watchdog, which was necessary for its actuary to fully evaluate the proposed rate increase. Consumer Watchdog’s preliminary analysis as alleged in its petition showed that the company was overstating its projected losses, resulting in an inflated rate request.
Farmers: Under Farmers’ approved $167.8 million overall 6.9% rate hike, 1.7 million policyholders will face average increases of $98 per policyholder. Additionally, this approval allows Farmers’ to continue its discriminatory three-tiered rating system charging low-income workers up to $130 higher base rates for a six-month policy than professionals with advanced degrees. Consumer Watchdog wrote to the Commissioner in December calling on him to reject the proposed rate changes.
Allstate: Under Allstate’s approved $165 million overall 6.9% rate hike, over 900,000 policyholders will face an average $167 annual premium increase. Consumer Watchdog wrote to the Commissioner in September urging him to reject Allstate’s rate proposal and job-based rating system. Allstate filed for another 6.9% rate hike in January that is still pending approval. That filing removed its job-based discounts for the first time since they were approved by the Department 10 years ago.
Last week, Consumer Watchdog filed a petition for a hearing on Infinity’s auto rate filings. Under its rate application for the company’s “RSVP” auto program, Infinity is requesting a $168.7 million overall 34% rate hike impacting 467,104 insured vehicles with an average rate increase of $360 per vehicle. For its “Special” auto program, the company is seeking a $130 million overall 26.1% rate hike impacting 522,237 insured vehicles for an average rate increase of $250 per vehicle. Among other issues, Consumer Watchdog’s petition alleges that the company is over-stating its expected losses, resulting in an inflated rate request.
Voter-approved Proposition 103 requires that insurers open their books and justify their rates in a public process in which consumer representatives have the right to access information filed with the Commissioner and actively participate. If an insurance company seeks a rate increase that exceeds 7%, and the application is challenged by the public, the Department must hold a hearing. Companies frequently file serial rate increase requests that fall just below the 7% threshold in order to avoid a public hearing.
In a 2019 study of the nation’s insurance laws, the Washington, D.C. based Consumer Federation of America called Proposition 103 “the best in the nation” and calculated it had saved Californians $153 billion on their auto insurance premiums alone… while allowing insurance companies to earn fair profits. Read CFA analysis here.
Prop 103 also requires that auto insurance premiums be based primarily on three mandatory factors – driving safety record, annual mileage, and years driving experience – and prohibits excessive and unfairly discriminatory rates. The Commissioner can adopt other optional rating factors by regulation, but occupation has never been adopted as a rating factor.
Consumer Watchdog and 10 community and civil rights organizations challenged auto insurers’ illegal and discriminatory use of job and education to set rates in February 2019. In September 2019, a Department of Insurance investigation confirmed those concerns, finding “wide socioeconomic disparities” created by insurance companies surcharging California drivers based on nothing more than their occupation or educational status. In December 2019, the Department proposed rules to address this unfair discrimination. However, over three years later, those rules have not yet been adopted by the Commissioner. Read the 2019 Petition here.