California Threatens Penalties Over Insurers’ Stalling Tactics Against Auto Insurance Buyers

California’s insurance commissioner is warning of a possible crackdown against insurers that fail to offer and sell auto insurance to the state’s good drivers.

Source: East Bay Times | Published on December 26, 2023

Auto insurance market heading in right direction

California’s insurance commissioner is warning of a possible crackdown against insurers that fail to offer and sell auto insurance to the state’s good drivers.

Commissioner Ricardo Lara said this week that the insurance department has received “numerous” consumer complaints about waiting periods, questionnaires and other insurer practices that could violate state laws, as CalMatters detailed in a recent story. Lara issued a bulletin threatening enforcement action against insurance companies as a result, and asking insurers to contact the Insurance Department’s legal division if they have questions.

“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 press release Thursday.

Lara’s spokesperson, Michael Soller, couldn’t say Friday exactly how many complaints the state has received, but said they came from the department’s consumer hotline, from legislators and local officials who were hearing from their constituents, from insurance agents and brokers, and from consumer groups.

In the bulletin, Lara detailed tactics that he said are improper for insurers to require as part of an auto-policy application, including requiring applicants to: complete questionnaires that are too long; verify school or employment information; respond to physically mailed questionnaires even when applicants elect to receive documents electronically; provide information about excluded drivers living at the same address; and provide copies of utility bills, vehicle registrations and photos of driver’s licenses or vehicles.

Walter Roberts, an insurance broker for an independent agency, shared with CalMatters screenshots that showed the delays some drivers have been subjected to, as well as some of the requirements Lara mentioned as being improper.

Roberts said he has been in the business for 30 years and this is the “hardest market ever,” which makes him glad he is retiring at the end of the month.

“It’s a good time to get out,” Roberts said. “It’s not very fun dealing with it on a day-to-day basis.”

The insurance commissioner’s bulletin reminded insurers that they must publicly file all changes they make before implementing them; that they have 15 business days after receiving an application to bind coverage; and that they must offer and sell auto insurance to anyone who qualifies as a good driver — a person who has had a license for the past three years, does not have more than one point on their record within that period and has not been at fault in an accident that resulted in injury or death. In addition, insurers are required to provide discounts to good drivers.

“These waiting periods, questionnaires, and other practices may serve as barriers to the acceptance of otherwise qualified drivers and are being used as roadblocks to slow down, restrict, non-renew, or outright refuse auto insurance coverage,” Lara’s bulletin said.

Denni Ritter, vice president for state government relations for the American Property Casualty Insurance Association, a national trade association for home, auto and business insurers, on Friday blamed the state for the problem and said insurers are “committed to following the law.”

“We are also committed to providing California consumers access to the insurance they need,” Ritter added. “Unfortunately, California’s outdated and broken regulatory system has led to market conditions that are threatening consumer access to the coverage they need.”

The industry’s usual response when asked why insurance isn’t more available and affordable in California — the state Insurance Department is also putting in place regulations to address problems in the home- and fire-insurance markets — is to point to state regulations. Ritter said she could not comment when asked for an explanation of how regulations could trigger the auto insurance delays consumers and lawmakers are reporting.

The insurance industry says it’s facing rising costs for claims, and has requested higher rate increases as a result. So far this year, the state’s Insurance Department has approved rate increases averaging 13.2%, compared with 10.6% in 2019. In addition, Ritter told CalMatters in a previous interview that California laws do not allow auto insurers to use telematics — technology that can collect driver-specific data — to help insurers more accurately price car-insurance premiums. As insurers hesitate to take on risk, she said that technology could help.

Consumer Watchdog Executive Director Carmen Balber said Friday that the Insurance Department needs to do more than simply “reiterating the law.”

“If the department has knowledge of these practices (in auto insurance), they need to launch a formal enforcement action to correct the problems,” Balber said.

Balber acknowledged that a bulletin Lara sent in 2020 resulted in auto-premium refunds to California drivers who had to stop driving because of pandemic lockdowns, though she said “a lot of money was left on the table.” Lara asked insurers for additional refunds the next year and continues to pursue them, Soller said Friday, adding that the amount refunded has now reached $2.6 billion, with $200 million returned to drivers since 2021.

The Insurance Department said in its press release that some insurance companies it has contacted have stopped the practices Lara is warning against. Soller said he could not identify the companies.

One company that has agreed to change its practices is Allstate, according to a stipulation shared with CalMatters by Consumer Watchdog. In mid-December, Allstate agreed to resume offering online quotes starting Feb. 7, and to offer new drivers the ability to pay their premiums every month as opposed to having to pay up front, just like it offers to drivers who renew their policies.