State insurance commissioner says companies are delaying policies, denying discounts

Responding to consumer complaints about auto insurance coverage, the state insurance commissioner said Thursday that insurers could face penalties for creating unlawful barriers for California drivers.

Ricardo Lara issued a bulletin to auto insurers, reminding them that they cannot change their policies’ terms and rates without formally filing for state review and approval. The bulletin also reminded companies that they must offer coverage to all motorists in California who meet the state’s legal definition of “Good Drivers.”

“These alleged passive-aggressive tactics by insurance companies to slow down drivers’ access to coverage are unacceptable, dangerous, and will not be tolerated,” Lara said in a statement. “I am taking action today to ensure these insurance companies are acting according to the law and giving drivers the coverage they are paying for at the rate they qualify for. We will continue to monitor the situation and take any and all steps necessary to protect California consumers.”

The commissioner acted in response to numerous complaints the department received about insurers imposing requirements that are not allowed by state law, including Proposition 103, the 1988 ballot measure that regulated property and casualty insurance sold in California. Issuing the bulletin, the department said, makes the legal requirements clear to insurers and “sets the stage for future enforcement actions, if warranted.”

Frustrated by state regulations, a number of 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.

California drivers are now running into speed bumps to coverage because insurers say they were hurt by Lara’s pandemic-related orders, including those requiring partial refunds to policyholders who were driving less and denying approval for rate increases through 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 American Agents Alliance, a national association of independent insurance agents and brokers.

The companies complained they were losing money despite being profitable as recently as 2022, according to Department of Insurance market share data.

The complaints that reached Lara’s desk include claims that some auto insurers may not be offering “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’s held a license for the last three years, has no more than one point on their driving record and was not principally at fault in a motor vehicle accident that resulted in bodily injury or death.

Consumers also have complained about “having to complete unnecessarily lengthy and/or confusing questionnaires, verify employment or school information, respond to physically mailed questionnaires despite applicants electing to receive documents electronically, provide information regarding excluded drivers living at the same address, and/or submit copies of applicants’ utility bills, vehicle registrations, and/or photos of 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 application for insurance, 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 on what insurers can demand from applicants. “The Insurance Commissioner may initiate administrative enforcement actions and/or seek penalties against any and all insurers failing to offer and sell automobile insurance to all qualified Good Drivers,” the bulletin states.

The bulletin also reiterates that, under Proposition 103, auto insurers in California are required to submit complete rate applications to the insurance commissioner for review and approval “any time they seek to implement new, or changes to existing, programs, coverages, rates, rating factors, underwriting guidelines, rating rules, forms, and fees, or make any other changes that may have a rate impact,” even if they think there won’t be any impact, according to the Department of Insurance.

“An insurer’s failure to file proposed underwriting guidelines prior to implementing the proposed guideline may result in an administrative enforcement action against the insurer leading to restitution and/or penalties,” the bulletin says.

Proposition 103 gave the insurance commissioner the power to review property and casualty insurance premiums before they go into effect, known as a “prior approval” system. It also sharply limited the factors insurers could consider when setting rates, requiring that they show data connecting each factor to their risk of loss. The goal was to prevent insurers from setting discriminatory premiums that didn’t reflect a driver’s potential for claims. Prior to the law, insurance companies weren’t regulated.

If a requested premium increase exceeds 7%, the commissioner makes an independent determination of the allowable rate change based on data provided by the insurance company. Proposition 103 also allows consumer advocates and other third parties to intervene with their own analyses and arguments.