In response to consumer complaints about auto insurance coverage, the state's insurance commissioner said Thursday that insurers could face penalties for creating illegal barriers for California drivers.
Ricardo Lara issued a bulletin to auto insurers, reminding them that they cannot change the terms and rates of their policies without formally requesting state review and approval. The bulletin also reminded companies that they must offer coverage to all California drivers who meet the state's legal definition of “Good Drivers.”
“These alleged passive-aggressive tactics by insurance companies to slow drivers' access to coverage are unacceptable, dangerous, and will not be tolerated,” Lara said in a statement. “Today I am taking steps to ensure that these insurance companies act in accordance with the law and provide drivers with the coverage they pay for at the rate for which they qualify. “We will continue to monitor the situation and take all necessary steps to protect California consumers.”
The commissioner acted in response to numerous complaints the department received about insurers imposing requirements that are not permitted under state law, including Proposition 103, the 1988 ballot measure that regulated property and casualty insurance sold in California. Issuance of the bulletin, the department said, makes legal requirements clear for insurers and “sets the stage for future enforcement actions, if warranted.”
Frustrated by state regulations, several insurers have limited the new policies their agents can sell in California. And for California drivers who already have policies, the challenge for many has been a sharp increase in premiums when they renew them.
California drivers now face coverage hurdles as insurers say they were hurt by Lara's pandemic-related orders, including those requiring partial refunds to policyholders who drove less and denying approval of rate increases. for most of 2022.
Big-name insurers have been saying for months that they “can't get the rates they need from the state Department of Insurance,” said Mike D'Arelli, executive director of the American Agents Alliance, a national association of independent insurance agents and brokers. .
Companies complained they were losing money despite being profitable in 2022, according to market share data from the Department of Insurance.
Complaints that have reached Lara's desk include claims that some auto insurers may not offer “good driver” discounts to those who qualify. According to the department, California law requires insurers to offer a policy with such a discount to any driver who has had a license within the last three years, has no more than one point on their driving record and was not primarily at fault. in a motor vehicle. accident resulting in bodily injury or death.
Consumers have also complained about “having to complete unnecessarily long and/or confusing questionnaires, verify work or school information, respond to questionnaires physically mailed even though applicants choose to receive documents electronically, provide information about excluded drivers who live at the same address and/or submit copies of utility bills, vehicle registrations and/or photographs of applicants' driver's licenses or vehicles, among other examples,” the department said Thursday.
These barriers in many cases “discourage, inhibit or delay” motorists from completing an insurance application, especially in a timely manner, the department said.
In addition to the requirement to offer coverage to good drivers, the bulletin issued by Lara highlights the limits to what insurers can demand from applicants. “The Insurance Commissioner may initiate administrative enforcement actions and/or seek sanctions against any and all insurers that fail to offer or sell automobile insurance to all qualified Good Drivers,” the bulletin states.
The bulletin also reiterates that under Proposition 103, auto insurers in California must submit complete rate requests to the insurance commissioner for review and approval “at any time they seek to implement new programs, coverages, rates, ratings, or changes in the existing ones”. factors, underwriting guidelines, qualification rules, forms and rates, or make any other changes that may have an impact on the rate,” even if they think there will be no impact, according to the Department of Insurance.
“An insurer's failure to submit proposed underwriting guidelines prior to implementation may result in administrative enforcement action against the insurer leading to restitution and/or sanctions,” the bulletin says.
Proposition 103 gave the insurance commissioner the power to review property and casualty insurance premiums before they take effect, known as the “pre-approval” system. It also sharply limited the factors insurers could consider when setting rates, requiring them to show data connecting each factor to their risk of loss. The goal was to prevent insurers from setting discriminatory premiums that did not reflect the driver's claims potential. Before the law, insurance companies were not regulated.
If the requested premium increase exceeds 7%, the commissioner independently determines the allowable rate change based on data provided by the insurance company. Proposition 103 also allows consumer advocates and other third parties to weigh in with their own analyzes and arguments.
