Our legal team was in San Francisco this week fighting another unjustified insurance rate hike – this time a 6% earthquake insurance rate increase requested by GeoVera.
Most of the company’s rate increase request is based on the cost of reinsurance (insurance for the insurance company) that it wants to pass on to its customers.
Prop 103’s requirement that insurers open the books and justify costs exposed a problem in the company’s claims: GeoVera’s rate increase was based on estimated reinsurance costs that are double what it really paid.
GeoVera told regulators and the court that its projected reinsurance costs for 2006-2007 were $76 million (see "CA EQ Reinsurance Premium"). The company’s annual statement, however, reported actual reinsurance payments of $36 million (see line 12, column 5). If the company had merely got the estimate wrong, it would have fixed the mistake. But GeoVera submitted the wrong estimate to the court to justify its rate increase request, even after the annual statement had been completed. It took the rate oversight process under Prop 103 to expose the lie.
Sadly, this is just the most recent example of insurance companies grossly overstating their expected claims. Consumer Watchdog studied the trend of inflated loss estimates in the malpractice insurance industry, finding that malpractice insurers across the country overstated claims by an average 46%.
Policyholders, of course, never see refunds for premiums they pay for claims that never materialize.
