Progressive to pay administrative penalty in Texas auto rate consent order

The Progressive Corp. will pay a $160,000 administrative penalty in connection with a regulatory dispute over a series of private-passenger auto rate increases filed in Texas during 2021.

The terms of a Jan. 12 consent order between the Texas Department of Insurance and Progressive County Mutual Insurance Co., which marks the culmination of a nearly five-month-long enforcement process, include the express reservation by the insurer that it does not admit to a violation of the state's insurance code.

Although the proposed Progressive rate increases may not have been individually material to the company, the Texas situation represented something of a symbolic shot across the industry's bow as private auto insurers began to file in mid-2021 for rate increases. These hikes reflected a return toward normal in the number of accidents as well as sharply rising costs to repair and replace damaged vehicles amid supply chain and general inflationary pressures — a scenario that injected unprecedented volatility into historical frequency and severity trends.

Other states continue to pay close attention to the actuarial trend selections Progressive and its peers are making in their rate filings, particularly those that may seek to finesse or maneuver around the impact of the dramatic, but fleeting decline in driving during spring 2020.

As 2022 begins, however, the passage of time allows for carriers to collect and incorporate additional data points to more effectively demonstrate that their filed rates adjust for normalizing claims frequency and sharp increases in claims severity for certain coverages in a manner that is neither unreasonable nor excessive.

Progressive separately filed for overall rate increases across its agency and direct channels in Texas of 0.8% and 1.6%, respectively, in April 2021 and 4.7% and 4.9% in July 2021. The consent order alleged that the filings violated a section of the insurance code and the portion of the Filings Made Easy Rule in the administrative code that defines specific information that carriers must include in their rate filings, including actuarial memoranda. Among the missing information in the April 2021 filings, the regulator alleged, was actuarial support for the premium and loss trends selected by the insurer. Further, the regulator alleged, Progressive's responses to its objections were "deficient."

With the regulators' concerns regarding the April 2021 filings still pending, Progressive submitted the July 2021 filings that also allegedly suffered from similar deficiencies to the earlier requests. While Progressive also responded to the regulator's objections regarding the July 2021 filings, the Texas Department of Insurance alleged that they, too, were "incomplete and/or deficient."

Both sets of filings elicited objections from the Office of Public Insurance Counsel, an entity independent of the Texas Department of Insurance that reviews and may object to rate requests pertaining to certain business lines. The Texas Department of Insurance in August 2021 initiated a process to disapprove the filings that as initially outlined would have included a public hearing before an administrative law judge. The hearing was continued as the parties indicated that they had begun informal settlement talks. Progressive separately stated that it denied each and every claim contained in the regulator's underlying petition, and the regulator noted that the insurer had submitted additional information through the fall of 2021 to "address the issues with the filings."

In addition to the monetary penalty, Progressive agreed under the consent order to "implement processes to confirm future filings will comply with the Filings Made Easy Rules."

The Texas Department of Insurance pursues enforcement actions against agents, carriers and other entities for a range of allegations that include improper claims handling, unfair or deceptive practices, unfair claims settlement practices, rating issues, and unauthorized insurance. The regulator reported assessing $5.9 million in penalties during the state's fiscal year 2021, which ended Aug. 31, 2021, including a $625,000 fine in February 2021 to Hudson Insurance Co., a subsidiary of Fairfax Financial Holdings Limited, pertaining to allegations of the use of unfiled policy forms and rates over a multiyear period.

Experience builds

With few notable exceptions, however, the debate between regulators and carriers regarding private auto rate increases in Texas and other states has largely occurred through the standard filing process as opposed to enforcement proceedings. The debate is likely to continue in 2022 as the industry faces mounting pressure on claims and all constituencies attempt to predict how quickly and to what extent the post-pandemic world will resemble the past.

The outcome of a recently filed request for Nevada rate increases of 15.9% and 4.6% by Progressive Direct Insurance Co. and Progressive Northern Insurance Co. will be worth following given concerns previously raised by the state's insurance regulator to novel approaches to calculating COVID-19-era actuarial indications and the more recent nature of the supporting data.

In December 2021, for example, the Nevada Division of Insurance informed Allstate Fire & Casualty Insurance Co. that it found the company's approach to bifurcate its frequency and severity provisions by excluding 2020 from the former and including it in the latter to be "particularly problematic." Among other things, the regulator said there is "good reason to expect that frequency will not simply return to pre-pandemic levels," and it argued that rising severity could be "an artifact of reduced frequency."

The Allstate Corp. subsidiary, which is seeking to raise rates on a $213.8 million book of business by 7.0%, countered that its calculations assume frequency in 2022 and 2023 will be below pre-pandemic norms, but higher than the average observed experience since March 2020 for many coverages.

The Allstate filing's severity indications use data through accident-year 2020; Progressive's Nevada filing includes data through Sept. 30, 2021, and generally weights data from the accident year ending on that date more heavily than prior periods. This is notable in that the most recent accident year referenced in the Progressive filing would not include the second quarter of 2020, the period where private auto industry loss ratios were most impacted by the pandemic.

The Progressive companies seek to implement the respective increases for renewal business on April 10.