Los Angeles, CA – New Department of Insurance regulations create an alternate rate review and approval process that effectively eliminates the public’s ability to challenge proposed insurance rate increases below 7%.
The rules would have foreclosed $2.6 billion in savings for drivers, homeowners, renters and doctors that Consumer Watchdog achieved in challenges to rate increases below 7% over the last 24 years (opens in new tab).
“This latest attack joins a long list of actions taken by the current commissioner to prevent the public from challenging rising insurance prices. The next elected insurance commissioner will need to reverse these acts to restore consumers’ rights early in their term,” said Carmen Balber, executive director of Consumer Watchdog.
The rules create a new rate pre-approval process during which the Department of Insurance will conduct a full rate analysis and determine whether the insurance company has provided the information necessary to justify its requested increase. This entire process – up to 167 days – would happen before public notice is made, and public participants will be barred from intervening. Intervenors typically add new information to the rate calculation and ask for information that impacts the rate analysis. Under the new regulation, the analysis will be complete before the public’s representatives ever get to the table.
An insurance company would then file a rate application to get approval for the increase. Only then would the public be allowed in. Any increase below 7% would be approved within 60 days of the rate application. Yet, without public notice before the rate application, most of those 60 days could be lost in applying for and getting approval from the Department to participate. The public can only demand a public hearing – giving public participants an opportunity to seek new information so they can test assumptions by the insurer and the Department – on a rate increase of 7% or above.
“Under these rules, all the decisions will be made before consumers get to the table. The formal approval will be a rubber stamp to a decision already made without them. That guts Prop 103’s key protection – the public’s right to challenge insurance companies’ and the department’s math – for all rate increases below 7%,” said Carmen Balber, executive director of Consumer Watchdog. “This alternate rate approval system blatantly violates Prop 103, a parting gift to the insurance industry that creates one more mess the next insurance commissioner will have to fix.”
“The new regulation was adopted with no advance notice, no hearings, and no opportunity for public comment. That private adoption process reflects the purpose of this regulation: eliminating the voices of consumers to allow the Department of Insurance to cut private deals with rate-gouging insurance companies,” said Robert Herrell, Executive Director, Consumer Federation of California.
Insurance companies would be able to use this alternate system to seek two rate hikes every year, further incentivizing companies to file serial rate increase requests of 6.9% or more to avoid public scrutiny.
The alternate process envisions rate approvals will take up to a total 227 days. While the Department’s press release claims to preserve the intervenor process, the alternate process expressly bars them from the table for all but the last 60 of those days for any increase below 7%.
The final rule was filed by the Department of Insurance directly with the Office of Administrative Law with no public notice, discussion, or hearings. By creating a rate review process closed to public participation, the rule is a clear violation of Proposition 103, said Consumer Watchdog, and filing it without public review was an illegal use of the ratemaking exception to the Administrative Procedures Act.
“It appears the Insurance Commissioner, having previously withdrawn an attempt to weaken the consumer intervenor process in the legislature, has inappropriately used legislative exceptions to avoid the Administrative Procedure Act (APA) requirements to achieve his goal. This regulation seems to appease the insurance industry without consideration of consumer protection measures,” said Marcus Friedman, Administrative Director, Consumer Protection Policy Center, University of San Diego School of Law.
By creating an alternate review process that excludes public intervenors, the rule goes even farther to exclude consumer groups from the process than a plan proposed as a 2024 Budget Trailer Bill by Governor Newsom and Commissioner Lara that failed to win approval from the legislature. Read consumer groups’ coalition letter opposing that plan. (opens in new tab)
Just as that failed bill proposed, the regulation:
- Excludes consumers’ voice in rate increases below 7%
- Speeds rate hikes so the public cannot meaningfully participate before a rate increase is approved
- Creates a presumption that rates are justified even in cases – a rate hike above 7% – where public challengers have a right to a public hearing
- Encourages insurers to apply for two 6.9% rate hikes a year to avoid public scrutiny
The regulation goes farther than the prior proposal in that, unlike the bill, it completely excludes intervenors from the substantive part of rate review in the pre-approval process it creates.
