Seeking Billions in Premium Increases, Insurance Industry Targets Law that Gives Consumers a Say in Insurance Pricing

Los Angeles, CA – Consumer Watchdog, a non-profit citizen organization, has saved state consumers $5.5 billion over the last 21 years using a voter-approved law that gives Californians a powerful and direct voice in how much insurance companies can charge – and insurance companies are trying to get rid of it.
 
A detailed study published today shows that between 2002 and 2023, the organization blocked $3.16 billion in auto insurance overcharges, $2.25 billion in unjustified increases in homeowners insurance, and protected health care providers and small businesses against $99 million in higher premiums. The savings are thanks to a provision of Proposition 103 that subjects insurance companies to public scrutiny and empowers consumers to independently challenge unjustified rate increases and other unlawful insurance company practices.
 
For the $5.5 billion saved policyholders from Consumer Watchdog’s challenges to unjustified rates, insurance companies had to reimburse the organization’s experts and attorneys $11.6 million, or less than 25 cents for every $100 saved for consumers.
 
Read the study, “How Citizen Enforcement of Proposition 103 has Saved Californians $5.5 Billion – and Why the Insurance Industry Hates It.” 
 
Watch the Consumer Watchdog Consumer Alert video: https://www.youtube.com/watch?v=ISeOVaBCURE  

In November and December 2023 alone, challenges by Consumer Watchdog to auto and homeowners insurance rate hikes requested by State Farm, Allstate, Pacific Specialty, and GEICO resulted in combined savings of $885 million.
 
With insurance companies currently seeking billions in additional new rate increases and the weakening of rules that have long protected Californians against price gouging, the study sheds new light on why the insurance industry is urging Insurance Commissioner Ricardo Lara to obstruct the public’s right to challenge illegal rates and practices. The insurance companies blame California’s consumer protections for the shortages they have orchestrated across the state. 
 
Consumer Watchdog also reviewed in greater detail rate challenges it has brought since 2019, when Insurance Commissioner Ricardo Lara became the sixth elected Commissioner. The report finds that insurance companies are primarily responsible for unnecessary delays in completion of rate reviews, not public scrutiny.
 
“Consumer Watchdog has blocked insurance companies from overcharging homeowners, renters, drivers and health care providers by $5.5 billion over the last 21 years,” said Carmen Balber, Executive Director of Consumer Watchdog. “No wonder lobbyists for the insurance industry are working day and night to derail this crucial consumer protection tool.”
 
“The voters understood that the industry and its allies would do everything they could to undercut the protections of Prop 103, so they gave themselves the independent authority to monitor and enforce the law in all matters before the Department of Insurance and the courts,” said Harvey Rosenfield, the author of Proposition 103 and the founder of Consumer Watchdog. “The goal of the opponents of public scrutiny and participation is to allow insurance companies to overcharge Californians. Make no mistake: paying the insurance industry’s ransom through unjustified premium hikes is not the way to address the shortages that the companies have created in the home and auto insurance markets.”
 
Here are the major findings of the report:
 
Consumer Watchdog has saved Californians $5.51 billion over the last 21 years. Between January 2002 and December 2023, Consumer Watchdog’s challenges blocked $3.16 billion in auto insurance overcharges; $2.25 billion in unjustified increases in homeowners insurance; and protected health care providers and small businesses against $99.08 million in higher rates. 

Since Insurance Commissioner Lara took office, Consumer Watchdog’s rate challenges have saved Californians $2.1 billion. Consumer Watchdog completed thirty-three rate challenges since January 2019. In 19 of those challenges, the proposed rate increase was approved at a lower percentage than the company originally requested—ranging from 0.6 to 21.6 percentage points lower. In seven of the 33 cases, the insurance company chose to withdraw its application rather than proceed to address Consumer Watchdog’s objections. And in seven instances, the Commissioner approved the rate the company originally requested. 

For every $100 that Consumer Watchdog saved policyholders, policyholders paid an average of less than 25 cents. Insurance companies paid a total of $11.6 million in fees and expenses for Consumer Watchdog’s attorneys, advocates, and experts for their work on behalf of consumers in over 140 proceedings over the last 21 years. Just over half of those fees went to outside experts with special knowledge, such as geologists and economists, who Consumer Watchdog hired to counter the industry’s experts. 

When Consumer Watchdog did not challenge a rate increase, insurance companies got most of the rate increase they requested. The report compares the outcome of the rate requests that Consumer Watchdog challenged with the ones it did not challenge between January 2022 and October 2023. In rate applications for homeowners insurance that Consumer Watchdog did not challenge, the Commissioner approved the application at an average of 97% of the rate originally requested by the insurance company. In matters in which Consumer Watchdog participated, the approved rate averaged 62% of the rate requested. Similarly, in auto insurance rate applications the Commissioner approved rate increases at an average of 98% of the rate requested. When Consumer Watchdog participated, the Commissioner approved, on average, 71% of the rate requested. 

Consumer Watchdog challenged an additional nine applications for violations of other Proposition 103 requirements. In nine challenges brought by Consumer Watchdog and resolved between January 2019 and October 2023, the organization targeted illegal conduct such as the use of discriminatory “underwriting guidelines” to deny people an insurance policy; the use of illegal criteria to set auto insurance premiums, such as whether a person has a professional job or an advanced educational degree; failure to refund auto insurance overcharges during the Covid lockdown; and an insurance company’s failure to comply with public disclosure requirements, including disclosure of computer models. The Commissioner required companies to change these practices in some instances. In others, the Commissioner stated he would address them by issuing a regulation—but has not done so. 

Insurance companies are primarily responsible for delays that add months or even years to the review process. Consumer Watchdog identified at least eight challenges completed during Commissioner Lara’s tenure that were significantly delayed by the insurance company, by up to 19 months. Such delays routinely occur when companies fail to file all of the paperwork required as part of a rate application; refuse to cooperate with requests from CDI and Consumer Watchdog for information that is needed to assess the validity of the proposed increase; “update” their requests with new data; slow walk the entire process when a rate decrease is required. The report found that CDI scheduling also drives the timeline for review of rate applications. 

During 2023, Commissioner Lara approved 179 rate increases, some without adequate review. The Commissioner has recently prioritized speed, sometimes over thorough analysis, in his consideration of rate applications. Commissioner Lara approved 61 rate increases for homeowners, averaging 13.4% between December 2022 and December 2023. He also authorized 118 auto insurance rate increases averaging 13.6% during that period. In several of the 20 rate challenges that Consumer Watchdog resolved during that time, its right to adequately review a proposed rate increase was significantly constricted when Commissioner Lara approved rate applications without allowing Consumer Watchdog to conduct a thorough review. 

As insurance companies demand more double-digit rate increases, Consumer Watchdog continues its advocacy on behalf of California homeowners and motorists. Home and auto insurance companies continue to request double digit rate increases. In November and December of 2023 Consumer Watchdog resolved six challenges, saving Californian homeowners, renters, and drivers another $885 million. As of January 2024, Consumer Watchdog is contesting five additional home and auto applications in which the insurance companies are requesting an average rate increase of 28%. 

“Inflation in home and car repair costs, wildfire-related property damage and an increase in auto accident claims are legitimately reflected in recent rate increases. However Consumer Watchdog’s experts have also found insurance companies have improperly inflated their projections of future claims, failed to follow state rules on the expenses they can pass-through to policyholders, and applied illegal restrictions on the sale of policies,” said Pam Pressley, Consumer Watchdog senior staff attorney.

“We’ve fought to eliminate unnecessary increases and to protect the public against excessive rates and unfair practices.” 

Proposition 103’s Public Participation Process, Hailed as the Strongest in the Nation, Keeps Industry and Regulators Honest

 
The right of consumers to monitor insurance companies’ compliance with Proposition 103 is part of the 1988 insurance reform measure, which the insurance industry outspent 23 to 1. Proposition 103 requires insurance companies to open their books and prove their rates and premiums are reasonable before the Insurance Commissioner can approve them. 
 
To make sure the insurance companies obey and the Commissioner enforces the law, it requires the insurance companies to pay the fees and expenses of lawyers, actuaries, and other experts who represent consumers in such challenges, at the market rate of the professionals with equivalent expertise who represent insurance companies. 
 
An extensive 2019 report by the Consumer Federation of America concluded that Proposition 103 had saved California motorists alone $154 billion since its passage. 
 
Read the Consumer Federation of America study.
 
Read about the current crisis in California’s insurance system and how Consumer Watchdog is fighting the insurance industry’s attack on Proposition 103.
 
Learn more about Proposition 103.