Consumer Watchdog Saves Policyholders $884.8 Million in Year-End Insurance Rate Increases

Allstate, State Farm also agree to remove restrictions on new car sales

THE ANGELS, January 9, 2024 /PRNewswire/ — Consumer Watchdog’s challenges to double-digit auto and homeowners insurance rate increases requested by State Farm, Allstate, Pacific Specialty and GEICO that were resolved over the past two months resulted in total savings of $884.8 million for California policyholders. Additionally, also in response to requests from Consumer Watchdog, Allstate and State Farm agreed to remove restrictions on sales of new auto policies that the companies had implemented in 2022. And Pacific Specialty agreed to stop using the “pride of the neighborhood property’ as an excuse for denying coverage to homeowners. The newly approved rates of the six companies will take effect between February and April 2024 and will affect over 9 million policyholders.

According to Consumer Watchdog’s analysis of rate filings, auto and homeowner insurance companies overestimated projected losses and inflationary trends, causing their proposed rates to be millions of dollars overstated. In each case, Consumer Watchdog successfully advocated for lower overall rate increases under Prop 103 and the pre-approval rate provisions, which require insurers to justify all rate changes prior to implementation.

of California the insurance market is in turmoil – insurance companies have created shortages by limiting new policy sales across the state while pressuring the insurance commissioner for massive premium increases,” said Pamela Presley, senior attorney at Consumer Watchdog. “With increasing pressure on the commissioner from insurance companies to quickly approve insurer-requested rate increases, careful consideration of rate requests and consumer participation in a public, data-driven review process is more important than ever.”

The $884.8 million in savings for the six rate applications the commissioner approved in November/December 2023 is calculated by comparing the companies’ initial requests with the final approved amount:

Company/Line of
Insurance

% percent
It’s growing
Requested

% percent
It’s growing
Approved

$ Savings

Date
Approved

Effective
Date

GEICO Cars

20.8%

12.8%

356 million

28.12.23

04/30/24

State farm
Homeowners/

Tenants/Floor

28.1%

20%

199.7 million

22/12/23

15.03.24

State Farm Auto

24.6%

21%

152 million

22/12/23

26.02.24

A Pacific specialty
Homeowners

6.9%

3%

6.3 million

21.12.23

Within 120
days

Allstate Auto

35%

30%

149.5 million

8.12.23

2/7/24

State farm for rent
Homeowners

20%

11.43%

21.5 million

17.11.23

2/1/24

Under Proposition 103, insurance companies are required to get the insurance commissioner’s permission before they can increase premiums. Each insurance company must open its books to public scrutiny and demonstrate that it needs the requested amount before the commissioner will approve it. And consumers have the independent right to challenge claims they believe are unfounded. After reviewing the claims, Consumer Watchdog invoked this authority to challenge the six companies and worked to reduce the claims to fair levels.

Here is a brief summary of each of the challenges raised by Consumer Watchdog:

State Farm Auto

  • Issues raised by Consumer Watchdog: (Read the petition)
    • State Farm overstates projected claim payments, leading to inflated rate hike requests.
    • The company used a method of designing personal injury and uninsured motorist claims that would result in excessive rates for personal injury and uninsured motorist coverages.
    • State Farm failed to exclude costs from the rate calculation for institutional advertising (advertisements designed to enhance the company’s image rather than sell specific insurance products) as required by state rules.
  • Rate requested by State Farm: 24.6%
  • Fixed Rate: 21% (Read the Agreement)
  • Savings: $152,005,591
  • Additional terms of settlement reached:
    • State Farm agreed to a 6-month moratorium on when future rate increases could go into effect.
    • State Farm has agreed to resume online quoting as of 02/26/24.

State farm owners, apartment owners, renters

  • Issues raised by Consumer Watchdog (Read the petition)
    • State Farm’s 2021 net income of 436 million dollars (more than 20% of the premium) was inconsistent with the requested rate increase (28.1%).
    • State Farm failed to justify what appeared to be an inflated estimate in its calculation of the percentage of catastrophe losses.
    • State Farm made unsupported claims payments for post-earthquake fire losses.
    • State Farm overestimated claims payment projections, leading to an inflated rate increase request.
    • State Farm failed to exclude costs from the rate calculation for institutional advertising (advertisements designed to enhance the company’s image rather than sell specific insurance products) as required by state rules
    • State Farm failed to substantiate its request for a “deviation” from the standard Proposition 103 rate calculation formula.
  • The price requested by SF: 28.1%
  • Fixed rate: 20% (20.8% for homeowners, 20% for apartment owners, 0% for renters) (Read the Agreement)
  • Savings: $199,747,670
  • Additional terms of settlement reached:
    • 6-month moratorium on effective dates for future rate increases
    • State Farm will only use insurance guidelines that have been publicly filed with CDI and will file complete insurance guidelines at the same time as all rate and policy applications

State Farm Rental Homeowners

  • Issues raised by Consumer Watchdog (Read the petition)
    • State Farm’s 2021 net income of 42 million dollars (more than 20% of the premium) was inconsistent with the large rate increase sought (20%).
    • State Farm made unsupported claims payments for post-earthquake fire losses.
    • State Farm overestimated projected claim payments, resulting in an inflated rate increase request.
    • State Farm failed to exclude costs from the rate calculation for institutional advertising (advertisements designed to enhance the company’s image rather than sell specific insurance products) as required by state rules.
  • The price requested by SF: 20%
  • Fixed rate: 11.43% (Read the Agreement)
  • Savings: $21,509,293
  • Additional terms of settlement reached:
    • State Farm will only use insurance guidelines that have been publicly filed with CDI and will file complete insurance guidelines at the same time as all rate and policy applications.

Allstate Auto

  • Issues raised by Consumer Watchdog: (Read the petition)
    • Allstate overstates projected claim payments and related costs, leading to inflated rate hike requests.
    • Allstate failed to exclude costs from the rate calculation for institutional advertising (advertisements designed to enhance the company’s image rather than sell specific insurance products) as required by state rules.
    • Allstate has taken unilateral steps to limit access to its auto insurance products, including changes that violate Prop 103’s good driver requirements.
  • The price requested by Allstate: 35%
  • Fixed rate: 30% (Read the Agreement)
  • Savings: $149,524,877
  • Additional terms of settlement reached:
    • 6-month moratorium on effective dates for future rate increases
    • Resume online quoting and binding policies from 2/7/24
    • Compliance of payment plan options to be the same for both new business and renewals to comply with Prop 103 Good Driver requirements.

Pacific Specialty Homeowners

  • Issues raised by Consumer Watchdog (Read the petition)
    • Pacific Specialty’s Guaranteed Profit of $14.9 million and a payment-to-premium ratio of 34.3% in 2019 is inconsistent with the requested rate increase.
    • The company’s predictions using a computer model for post-earthquake fire losses were 250% higher than another similar model, suggesting one of the models was unreliable.
    • Pacific Specialty overestimates projected benefit payments, resulting in an inflated rate increase request.
    • Pacific Specialty failed to support its request for a deviation from the standard rate calculation formula.
    • Pacific Specialty failed to use objective, non-discriminatory underwriting guidelines by refusing to insure properties located in neighborhoods that did not exhibit “pride of ownership.”
  • The price requested by Pacific Specialty: 6.9%
  • Fixed rate: 3% (Read the Agreement)
  • Savings: $6,334,736
  • Additional deadline reached for settlement:
    • Eliminate insurance guidelines denying coverage for “Properties located in a neighborhood that does not exhibit pride of ownership or condemned housing.”

GEICO Cars

  • Issues raised by Consumer Watchdog (Read the petition)
    • GEICO overstates its estimated benefit payments, resulting in an inflated rate increase request.
    • GEICO failed to exclude costs from its rate calculation for institutional advertising (advertisements designed to enhance the company’s image rather than sell specific insurance products) as required by state rules.
    • GEICO included excessive expenses in the rate calculation, claiming that 25% of its expenses were due to sales through agents, even though all GEICO sales offices in California were closed in 2022 and now only sells policies directly through internal staff over the phone or the Internet.
    • GEICO’s use of education and occupation as rating factors to charge lower-income workers more for an auto policy than professionals with advanced degrees violates Rule 103 and the automatic rating factor regulations.
  • The price requested by GEICO: 20.8%
  • Fixed rate: 12.8% (Read the Agreement)
  • Savings: $356,008,006
  • Additional terms of settlement reached:
    • 6-month moratorium on effective dates for future rate increases

Consumer Watchdog is currently challenging requests to increase the homeowners insurance rate of 2,024 homeowners from Allstate (39.6%), Liberty Insurance Corp. (29.1%), Standard Fire Insurance Company (21.7%) and USAA (20.2%), seeking a percentage increase of 28%. by CSAA to its motor insurance policies. Among other issues, Consumer Watchdog petitions claim that companies overestimate their expected claim payments, leading to inflated asking rates.

Background
2019 Survey of the Nation’s Insurance Laws, Washington The Consumer Federation of America-based called Proposition 103 “the best in the nation” and estimated it saved Californians 153 billion dollars only on their auto insurance premiums… while allowing the insurance companies to make a fair profit. Read the CFA analysis here.

Founded in 1985, Consumer Watchdog is a nonprofit, nonpartisan organization.

SOURCE Consumer Watchdog

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