Fight intensifies over delays in approving auto, home insurance price hikes

Allstate wants to raise the average price of its home insurance policies by almost 40% for its California customers.

The request needs state approval.

Still, before you cry “gouging!” it's worth understanding the timeline.

It all started back in April, when the company asked for the increase. Ten months later, the request is still being evaluated.

That is not uncommon. Roughly 170 home and automobile policy price changes were pending in front of the Department of Insurance last month. The reviews can sometimes take more than a year.

Trade groups representing insurers want the process to move faster, saying the delays devalue any price increases ultimately approved. Others argue the insurers add to the holdup and overreact by asking for exorbitant increases.

The resulting debate has made the complex reviews a major tension point for organizations closely watching the state's insurance prices. And it's a process Insurance Commissioner Ricardo Lara is vowing to speed up.

Allstate is one of California's largest home insurers. It had more than 353,000 active policies in 2021, according to data it submitted with its request. In 2022, the company stopped selling insurance to new customers in the state, a halt in business that is still in effect. It and other large insurers have limited or paused selling new policies in recent years, citing inflation and costs for their own insurance — along with the time it takes to change rates.

“We're looking for timely approval of adequate rates, which I believe will have the most significant impact on the market to get companies to where they need,” said Mark Sektnan, who is involved in state government relations for the American Property Casualty Insurance Association, a national trade group.

Harvey Rosenfield, founder of the advocacy organization Consumer Watchdog, thinks companies are trying to pressure the agency to fast-track their requests.

“I'd rather the department take its time and get it right and have people not be overcharged,” he said, “than suddenly cater to the industry's demands for inflated rate increases.”

Rosenfield authored the state law, passed by voters in 1988, that requires rate changes to be approved.

Stuck in the middle is Lara and his department. At a recent hearing in front of state lawmakers, he defended the agency's work.

“We thoroughly review each and every rate filing,” he said, “to make sure they are compliant with our laws, that they're justified and that consumers get the best value for their money.”

Lara directed blame at both insurance companies and Consumer Watchdog.

Thorough or sluggish?

Allstate's 39.6% rate hike is just one of more than 500 price change requests sent to the department last year. They are not just limited to home and auto policies, and are only some of the thousands of filings the agency receives annually.

Department staff scrutinize the hefty packets submitted by companies, which can run hundreds — and sometimes thousands — of pages long. Under state law, no rates that are excessive or inadequate can be approved and the eventual price change can be lower than what the company requests.

The flood of documents has been too much for the agency's employees to inspect quickly. Lara recently told lawmakers that his office is trying to hire more analysts and actuaries to improve the review process.

Michael Soller, a department spokesman, said in an email the department's rate regulation unit has nearly 100 actuary and analyst positions and was working to fill eight openings.

Lara also said insurance companies have been allowed to submit incomplete rate applications in the past, a practice that has slowed down the reviews.

“We don't have the luxury or time for a lengthy back and forth,” Lara said during a Senate Insurance Committee hearing in January.

Groups representing insurers argue the department is contributing to that back and forth. They said the agency could do more to make sure companies have fewer errors from the start and better structure the evaluations to prevent drawn out disagreements over expert calculations.

On Friday, the agency released amendments to its rules regarding rate reviews. They include more specific information that companies are supposed to submit as part of their initial applications, in an effort to “eliminate confusion among insurers.” The changes will be the subject of a public hearing in March.

Rex Frazier, president of the Personal Insurance Federation of California, which lobbies on behalf of Allstate and other major insurers, said every rate approval can feel like a custom negotiation under the current system.

“Of course we want thorough rate review,” Frazier said, “but there's also a consequence of having a sluggish rate review process.”

What those consequences are is also debated.

Who pays for reviews?

Two months after Allstate submitted its request, Consumer Watchdog filed a petition to intervene.

California law allows people and organizations to challenge rate changes. In the filing, the organization argued that Allstate overstated its projected losses, among other allegations. Ben Corey, a communications manager for the company, said in an email the proposed price change was in response to an increase in payments for claims from accidents and disasters.

Last year, petitions to intervene were filed in 18 of the more than 500 rate applications companies submitted, Lara told lawmakers in January.

All of them came from Consumer Watchdog.

That is where insurance industry groups like to hurl blame. They say the organization is slowing down reviews because its representatives are not fully prepared when they get involved.

Under state law, rate objectors can require the department hold a hearing on requests exceeding 7%, further lengthening the approval process. And they accuse Consumer Watchdog of having an incentive to slow-walk approvals, because state law also allows challengers to be reimbursed for fees and expenses if they are found to make a substantial contribution to an evaluation.

Lara has also accused the organization of raising unrelated issues and duplicating the department's arguments about a rate change.

He said that won't be able to happen moving forward.

“We can't delay this process any further,” he told lawmakers in December.

Rosenfield, of Consumer Watchdog, called the criticism part of “insurance propaganda.” He accused companies of wanting to speed up the reviews in an effort to avoid public scrutiny. If that happens, he warned, “rates will go through the roof.”

There's no arguing that his organization has received money for its challenges. Since 2013, it has recouped more than $9.4 million, department records show. A couple other groups also were reimbursed during that time.

The costs are paid by the companies that apply for the rate changes. Frazier, of the insurance federation, said they are passed on to policy holders.

Rosenfield said Consumer Watchdog's actions are paying off. In a report released earlier this month, the organization contends that it saved Californians more than $2 billion in recent years through rate challenges.

The group stepped in on 33 requests for price changes from 2019 through 2023 and in most of the cases the approved increase was either lower than what companies originally asked for or insurers withdrew their requests all together, the report said.

Even though Consumer Watchdog is involved in only a fraction of the rate applications submitted during that time, Sektnan, of the national insurance association, argues they can have a significant effect.

“It may be a small number but if you're doing all the large companies, it's going to impact the market.”

U.S. Rep. John Garamendi, a Bay Area Democrat who previously served as the state's insurance commissioner, is closely watching Lara's efforts to speed up the rate reviews.

“It's really important that the public have the opportunity to intervene in the process,” Garamendi said in an interview. “Their task is to question the insurance companies but also question the commissioner.”

In the case of Allstate's request, those questions could continue for several weeks, if not months. Rosenfield said his organization was still in the middle of its challenge.

While the proposed rate hike is being assessed, Mary Sue Bizzarri, 68, worries about the effect it will have on residents with fixed incomes.

Bizzarri lives just outside of Sutter Creek, in Amador County, on a property on top of a ridge, surrounded by grass and oak trees. She and her husband have had a home there since 1998. Allstate has insured it the entire time.

These days, Bizzarri feels fortunate to even have a policy from the company. So many of her neighbors have been forced to buy fire insurance from the California FAIR Plan, a private association established by the state more than 50 years ago.

It is supposed to be an insurer of last resort, but the number of policies it has issued has risen sharply in recent years.

“We won't be happy if our bill goes up 40% but what are we going to do? We'll pay it. It's not like I'm going to say, `I'm not going to buy this,'” Bizzarri said. “I'd like it to be a lot less, but I also don't want Allstate to leave the state.”

Their policy is up in May. Bizzarri wonders if this will be the year the company decides not to renew it.