California's insurance regulator is concerned that pending personal auto rate filings will essentially cancel out the rebates the state previously ordered insurers to pay out.
The California Department of Insurance, which has not granted any private auto rate hikes since the U.S. declared COVID-19 a pandemic in March 2020, has 38 filings for rate increases from 18 different insurer groups pending, according to Deputy Commissioner Michael Soller.
All but three of those pending filings are asking for increases of less than 7%. Under provisions of California state law, annual personal line increases greater than 6.9% can trigger public hearings that would include consumer reviews.
If the increases were approved, the resulting higher premiums would, over time, exceed the premium refunds that Commissioner Ricardo Lara believes policyholders are owed, Soller said in an interview. Those premium refunds came after the frequency and severity of road accidents fell sharply during the height of the COVID-19 pandemic. While many underwriters slashed rates or issued refunds on their own, Lara specifically ordered The Allstate Corp., Mercury General Corp. and CSAA Insurance Exchange to issue rebates to California policyholders.
There is no timeline in place for decisions on the pending increases, but the department is "actively reviewing" the filings, according to Soller. Those reviews will be made in line with Lara's priority that auto premiums "accurately reflect consumers' driving behavior and the risk of loss that we've seen," Soller said.
The extended delay in approving new rates has led to some insurers pulling back in the Golden State's auto market. The Progressive Corp. CEO Tricia Griffith during the company's second-quarter earnings call said the company plans to refrain from writing additional auto insurance in California until adequate rates can be achieved.
Political considerations
While Griffith referred to the ongoing delays as a rate-hike "moratorium," Soller said the department is "not trying to up the ante in any way."
"Commissioner Lara is really pumping the brakes on [insurers'] plans to accelerate premium hikes so that we can review this data and make sure that the pricing is commensurate with the risk," Soller said.
This extra scrutiny is not the only element causing the extended delay, according to Keefe Bruyette & Woods analyst Meyer Shields. Holding back on auto rate increases is more of a political issue rather than the "actuarial, economic reality," a reference to Lara's election campaign for a second term as insurance commissioner.
Lara, a Democrat who was the top vote-getter in the June jungle primary, will face Robert Howell, a Republican and cybersecurity equipment manufacturer, in November's general election.
Many underwriters in California fret over the continuing delay, but rate relief should come "as long as companies don't try and push it too aggressively ahead of the election," Shields said.
"The electorate in California is dealing with inflationary pressures all over the place, and they don't want higher interest rates on top of that," Shields said in an interview, adding that increases are "certainly necessary from an actuarial standpoint."
"It's really just a matter of time," the analyst said.
