California Insurance Commissioner Ricardo Lara's recent approval of a $263.7 million rate hike by California's largest insurer, State Farm, marks the latest in a flurry of approvals of unjustified 2023 auto insurance rate hikes by the top six auto insurers, collectively totaling more than $1 billion, Consumer Watchdog said in a news release.
These companies insure approximately 48% of the state's insured vehicles. The group said hardest hit by the rate hikes are low-income workers who, under some auto insurers' job-based rating plans approved by Lara, will pay up to 25% more than professionals with college degrees.
After months of inaction on the proposed rate hikes, Lara rushed to approve them over the objections of Consumer Watchdog, which challenged the proposed rates as unjustified under voter-approved Proposition 103.
According to Consumer Watchdog's analysis of the rate filings, auto insurance companies are overstating projected losses and inflation trends, causing their proposed rates to be excessive. A recent study by Consumer Federation of America and Center for Justice and Democracy also concluded commercial insurers are misrepresenting their actual losses by large percentages.
"The commissioner needs to use his voter-enacted authority under Proposition 103 to protect California consumers from unnecessary rate increases and discriminatory overcharges, especially low-income workers hit hardest by the pandemic," said Pamela Pressley, Consumer Watchdog senior attorney. "Under voter-enacted Prop 103, insurance companies have the burden to prove their requested rate hikes are justified. But by giving in to insurance company pressure to swiftly approve insurance companies' requested rate hikes, the commissioner is short-circuiting the public scrutiny needed to ensure that excessive rates are not approved.
"These massive premiums increases have been approved even though most auto insurance companies have failed to fully repay their customers for windfall overcharges during the pandemic lockdown, when people dramatically reduced their driving and accidents, and insurance claims dropped," Pressley said. "Consumer Watchdog has estimated that motorists are owed billions in additional refunds."
The $1 billion in auto insurance rate hikes approved by Lara over the last few months, which will take effect in 2023, include:
State Farm
Under State Farm's approved $263.7 million overall 6.9% rate hike, 3.7 million policyholders face an average rate increase of $71 per policyholder. According to Consumer Watchdog's analysis finding the company overstated its projected losses, this increase was more than double the amount that should have been approved, resulting in $136.8 million in overcharges to consumers.
Interinsurance Exchange of the Auto Club (Auto Club of Southern California)
Under the Auto Club's approved $202 million overall 6.9% increase, 1.44 million policyholders, who collectively own 2.68 million vehicles insured by the company, face an average annual premium increase of $75 per insured vehicle ($140 per policy). According to Consumer Watchdog's analysis finding the company overstated its projected losses, this increase was more than seven times the amount that should have been approved, resulting in $175.6 million in overcharges to consumers.
The worst of Auto Club's rate increase will fall on low-income drivers who don't have one of the professional occupations for which Auto Club gives a premium discount. These grocery clerks, hotel workers, janitors, home health care aides and other drivers without white-collar jobs will be surcharged, paying up to $167 more in annual premiums per policy than drivers in one of Auto Club's preferred occupation groups.
Mercury
Under Mercury's approved $132 million overall 6.9% rate hike, 1.6 million insured vehicles will face an average increase of $80 per insured vehicle. Under Mercury's five-tiered rating system based on education and occupation, most working-class policyholders---from waiters to cashiers, construction workers to call center operators---will pay up to about 20% more than drivers with professional occupations and advanced degrees such as engineers with a bachelor's degree or higher education level.
The Department prematurely approved Mercury's and its subsidiary Cal Auto's rate filings over Consumer Watchdog's objections to the companies' discriminatory job-based surcharges and inflated loss projections and without allowing Consumer Watchdog to complete its full analysis.
GEICO
Under GEICO's approved $268 million overall 6.9% rate hike, 2.1 million policyholders will face an average $125 annual premium increase. Drivers working in fields like custodial, construction or food service will pay 25% higher premiums than drivers in GEICO's preferred "professional" occupations, including lobbyists, architects and financial analysts. They will pay almost 11% more than engineers, auditors and judges. GEICO filed for another 6.9% rate hike last month that is still pending approval.
Contrary to Prop 103 and its own long-standing procedures, the department failed to require GEICO to turn over most of the information requested by Consumer Watchdog, which was necessary for its actuary to fully evaluate the proposed rate increase. Consumer Watchdog's preliminary analysis as alleged in its petition showed that the company was overstating its projected losses, resulting in an inflated rate request.
Abby Andrews